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New “Regime for the Promotion of the Knowledge Economy”

New “Regime for the Promotion of the Knowledge Economy”

Law 27506 (published in the Argentine Official Gazette on June 10, 2019) creates a promotion regime for knowledge economy-related business, broadening, modernizing, and simplifying the software industry promotion regime enacted 15 years ago.

“Knowledge economy” is the production of goods and provision of services based on the increasing use of information and communication technologies and highly skilled human capital.

The law is intended to promote, through the granting of tax benefits, any business related to the development of products and services of software, audiovisual production, biotechnology, electronic and communications services, nanotechnology, the aerospace and satellite industry, nuclear engineering, artificial intelligence, industrial Internet and robotics, among others.

The benefits for the companies that adhere to the regime are the following:

  • Tax Stability: the total national tax burden will not be increased −direct taxes, rates, fees, import/export duties− while the regime is in force. This benefit will also apply to the tax burden in the City of Buenos Aires, the provinces, and any municipalities, to the extent that they have adhered to the law.
  • Labor Cost Reduction: subtraction of the maximum amount set forth in Section 4 of Executive Order 814/01 (currently AR$ 17,509.20) from the tax base applicable to calculate employer dues payable by the beneficiary company. A tax credit bonus may also be obtained, worth up to a given amount of the employer dues that would have been payable. This tax credit may be offset against the income tax and the value added tax.
  • Income Tax: the tax rate is reduced to 15%, insofar as the personnel is kept.
  • Withholdings and Surcharges: beneficiaries will not be subject to value added tax withholdings and surcharges.
  • Benefit for Exporters: they may deduct a credit for taxes similar to the income tax actually paid or withheld abroad in the case of Argentine-source income.

This regime is available to companies that, on their own, conduct as their main business (70% of their total revenues) any of the activities promoted by the regime. They must also register at the “National Registry of Beneficiaries of the Knowledge Economy Promotion Regime” and meet at least two of the following requirements:

  • Proving continuous improvements to the quality of their services, products, and/or processes.
  • In relation to the company business, proving disbursements in research and development equal to at least 3% of their total revenues and/or proving that their staff’s training is worth at least 8% of total salaries.
  • Proving exports of goods and/or services arising from the development of any activities promoted worth at least 13% of the total revenues of those activities.

Beneficiaries must pay up to 1.5% of the total tax benefits granted within the framework of this regime into the “Trust Fund for the Development of Entrepreneurship Capital” (FONDCE).

The regime law enforcement authority will be the Labor and Production Ministry, which will issue its regulations.

This regime will be in force between January 1, 2020, and December 31, 2029.

For more information, please contact Leandro H. Cáceres at + 54 11 4319 7100 or lcaceres@brons.com.ar.