Doing Business In: Latin America

Diaz Reus International Law Firm & Alliance

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2020 Business Law Trends in Latin America

The pandemic has triggered the most profound humanitarian, health, and economic crisis the region has faced in a century. The evolving regulatory landscape, owing to ongoing efforts to confront COVID-19 and protect public health and safety, creates a broad range of novel legal concerns for businesses in Latin America (“LATAM”).

Making the Best of the Fiscal Panorama

While regional governments continue to focus on ensuring that the health sector has enough resources to protect the public, there is also growing concern about preserving jobs and production capacity through liquidity mechanisms for companies, particularly small and medium-sized enterprises. To that end, countries in the region have implemented targeted fiscal policies related to public spending, tax revenues and liquidity distribution, including giving tax relief to businesses, credit guarantees and loans to the private sector, as well as providing additional capital to public financial institutions and making investments to reactivate infrastructure projects.

Accordingly, companies with operations in LATAM should keep up with tax reforms and how they will alter current tax structures. Companies should also review tax incentive programs, and take advantage of any opportunities for reducing their tax burden.

Changes in the Employment Landscape

There is also a growing concern among governments about the pandemic’s impact on the work environment. Colombia, Brazil, and Peru, among others, have issued additional regulations regarding teleworking arrangements to secure the health and safety of the home workplace, compliance with working hour and rest time requirements, and allocation of incremental work-related expenses. Argentina, Panama, Costa Rica, Brazil, and Mexico have also declared states of emergency, giving companies increased flexibility to change working conditions or suspend employment contracts. El Salvador, Peru, Chile, Argentina, and several other LATAM countries have created programs to support workers’ incomes, including benefits and subsidies that companies can request on behalf of employees, and providing direct coverage of companies’ payrolls during the economic crisis.

Additionally, concerns about employees’ privacy rights have come to the forefront, as more LATAM businesses have been forced to operate remotely during the COVID-19 pandemic. The notion that individuals have a fundamental right to privacy, especially in their home, and that they should be able to control personal information disseminated in public or private databases (habeas data) is one of the core elements of a number of national constitutions in the region. Unsurprisingly, companies from several LATAM jurisdictions must notify employees of any methods used to remotely monitor their activities, and grant them access to any information gathered from them as part of such remote monitoring.

Increase in Commercial Litigation and Arbitration

With many micro, small and mid-sized enterprises in the region facing insolvency, the pandemic has exacerbated commercial litigation, including litigation over how to allocate risks of, and damages caused by business disruption and the nonperformance of contractual obligations. In LATAM, these disputes often involve determining whether COVID-19 or its economic and regulatory impacts constitute events that the parties can neither reasonably anticipate nor control, and which prevent one or more parties from performing obligations under the contract. This is because most judicial systems in the region provide for possible defenses in such circumstances under doctrines of force majeure, impossibility (hardship), impracticality, fortuitous event, and/or frustration of purpose.

The coronavirus outbreak is also likely to boost arbitration in LATAM, since certain governmental measures during COVID-19 may give rise to claims under bilateral or multilateral investment treaties. Policies such as increasing and tightening foreign investments screening in certain sectors of the economy (e.g., security, defense, health and infrastructure) may be deemed in breach of treaty protocols such as the fair and equitable treatment and most favored nation standards, or prohibitions against state expropriation of private property without compensation.

Against this backdrop, impacted parties in the region should carefully analyze their legal rights and obligations under the specific terms of existing commercial agreements, financing instruments, and insurance policies. Companies currently negotiating commercial agreements in the region should also prioritize questions concerning the appropriate allocations of risks resulting from the coronavirus outbreak.

New Dynamics in the Real Estate Market

The real estate market in LATAM has taken a substantial hit, under the headwinds of a broad regional economic slowdown and exacerbated investor uncertainty. Nevertheless, in countries such as Peru, Mexico and Colombia. the pandemic has stimulated demand for real estate with outdoor space, resulting from lockdown policies and a shift towards remote working. The pandemic is also accelerating the adoption of new digital technologies in the real estate industry, such as online platforms to connect parties to real estate transactions, and is boosting competition among mortgage lenders. Legislators in the region have been called to update their laws relating to commercial leases and utilities to adopt to a new reality.