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New Law Promotes Furthering of Knowledge Industry in Argentina By Sergio Caveggia
The “Knowledge Industry” employs more than 400,000 people and generates $6bn in revenues for Argentina.
T
he Government intends to foster this even further to create 200,000 new jobs and generate more than $15bn in exports.
A recently gazetted law grants tax benefits to remove obstacles and ease the way for the development of knowledge-related activities. The Software Promotion System (implemented about 15 years ago and effective until the end of 2019) was efficient at promoting the industry. The new law up-dates and simplifies it, including a wider definition than just the “software industry”.
"A recently gazetted law grants tax benefits to remove obstacles and ease the way for the development of knowledge-related activities."
The system promotes: • software, IT and digital services • audiovisual production and post-production • biotechnology, bio-economy, biology, biochemistry, microbiology, bioinformatics, molecular biology, neurotechnology and genetic engineering, geo-engineering, and the trials and analyses • geological and prospective studies, and services related to electronics and communications • professional services relating to export services • nanotechnology and nanoscience • aerospace and satellite industry, space technology • engineering for the nuclear industry • manufacturing, maintenance and introduction of goods and solution-oriented services and automation processes, such as AI, robotics and industrial internet, IoT, sensors, additive manufacturing, augmented and virtual reality and simulation (in these cases, only in connection with industry 4.0).
There are requirements to be met by taxpayers. The benefit is applicable to corporate income taxpayers engaged in any of the above activities in Argentina, on their own behalf and as their main business. They must meet at least two of these requirements: • evidence of continued improvements in the quality of services, products and/or processes, or through a well-known quality standard • evidence of disbursements related to research and development tasks (at least three percent of total revenues); training for such activities, involving at least eight percent of total salaries • evidence that they export goods and or/services in an amount representing at least 13 percent of the total revenues from such activities. When the activity under promotion involves professional services, the exports exclusively related to such activity shall account for at least 70 percent of total revenues. Micro and small enterprises providing professional services are subject to less demanding requirements.
It also comprises engineering, exact and natural sciences, agricultural sciences and medical science activities related to research and experimental development.
The new law also defines “main activity” as the situation in which the percentage of revenues related to the promoted activity represents at least 70 percent of total revenues.
It includes exports related to goods and services, and those meeting the requirements mentioned above, also falling under the “main activity” definition included in the previous paragraph. TAX BENEFITS Federal tax stability can be extended to provincial and municipal taxes, provided that the different jurisdictions join the system. This implies that the tax burden of beneficiaries will not be increased on their request to join the system. Unlike in the current system, “stability” includes export and import duties. A monthly deduction is based on the price index for each payroll employee of the tax base, subject to social security contributions (this is immediately applicable; the other companies are subject to a progressive schedule for applying the deduction until 2022). Tax credit bond equal to 1.6 times the contributions which should have been paid on the amount mentioned in the previous paragraph; that is to say, that a tax credit bond is generated over the employer contributions payable on a salary. Such a bond may be computed against prepayments or amounts payable arising from income tax or value-added tax returns. It may be transferred once. Income arising from the incorporation of the bond to the beneficiary’s equity will not be subject to income tax. A 15 percent income tax rate will apply if the payroll maintenance requirement is met. Beneficiaries are required to apply the tax rate on the distribution of dividends established by the Tax Reform of late 2017. The effective tax rate, considering shareholders and beneficiary companies, would stand at about 26 percent, if we take into account the 13 percent withholding on dividends applicable as from 2020.
"The new law also defines 'main activity' as the situation in which the percentage of revenues related to the promoted activity represents at least 70 percent of total revenues." 152
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