EY Argentina: Argentina’s promotional tax system for knowledge-based companies is gaining traction in the local market

After more than two years of enacting the “knowledge-based” law, the time has come to ask whether this new promotion system has really improved the ability of knowledge-based industries to generate employment, development federal economy and foreign exchange reserves. .

As a reminder, Law No. 27 506 was published in the Official Bulletin on June 10, 2019. This law established the promotional regime for the knowledge economy. The system created a legal framework that removed the uncertainty in which these types of industries found themselves.

However, the scheme was suspended by the government in January 2020 with the intention of introducing some changes. Later, in February 2020, a bill was submitted to the Chamber of Deputies to modify certain articles of Law No. 27.506. Finally, on October 26, 2020, Congress enacted Law No. 27,570, which is currently in effect.

The last amendment distributed the profits according to the size of each local company and the level of maturity of each production sector, among others, while continuing to promote and support the development of large companies, essential to the growth of the country. In addition, new requirements for benefiting from the scheme and modifying certain benefits have been introduced. The plan will be in effect until December 31, 2029.

Few industries have grown as much in the world since the start of the pandemic as those linked to the knowledge economy. Along this path, the new progressive local tax promotion encompasses the creation of quality jobs, technological development and high value-added exports.

The vast universe of activities included in the promotional tax regime should not be overlooked. These activities are: (i) computer and digital software and services, including several modalities for the implementation and development of these tools; (ii) audiovisual production and post-production, including digital formats; (iii) biotechnology, bioeconomy, biology, biochemistry, microbiology, bioinformatics, molecular biology, neurotechnology and genetic engineering, geoengineering, and their testing and analysis; (iv) geological and prospective studies, and services related to electronics and communications; (v) professional services, only to the extent that they constitute export services; (vi) nanotechnology and nanoscience; (vii) aerospace and satellite industry, space technologies; (viii) engineering for the nuclear industry; (ix) manufacture, development, maintenance and introduction of goods and services for production automation solutions, including feedback cycles from physical to digital processes and vice versa, characterized at all times exclusively by use of Industry 4.0 technologies, such as intelligence, robotics and industrial internet, internet of things, sensors, additive manufacturing, augmented and virtual reality.

It also includes the activities of engineering, exact and natural sciences, agricultural sciences and medical sciences related to research and experimental development tasks.

In addition, qualified export professional services include legal, accounting, management, public relations, auditing, tax and legal advisory services, translation and interpretation services, human resources services, advertising, design, engineering and architecture.

Fiscal advantages

In general terms, companies that manage to be included in the knowledge-based regime will enjoy the following benefits:

  • Tax stability for taxpayers.
  • A 60% reduction in the income tax rate for micro and small businesses, 40% for medium-sized businesses and 20% for large businesses, applicable on income from promoted activities (which, given the current general rate of 30%, would result in effective tax rates of 12%, 18% and 24%, respectively).
  • A tax credit voucher equal to 70% of the amount due in respect of the social security contributions of employees working in the promoted activities (80% if these employees are employees, professionals with degrees in engineering and/or exact sciences or people, people with disabilities and other specific groups) and applies up to 3,745 employees (and new hires for promoted activities that increase the total workforce).

Status of requests for the promotional tax system in Argentina

Over the past twelve months, local businesses have advanced on some pre-feasibility analyzes to internally validate whether they are in good shape to access the promotional system.

It should be noted that a large amount of documentation and information must be collected and analyzed when applying to the knowledge-based regime. It’s not extremely difficult, but it does require companies to spend some time preparing for submission.

On the other hand, previous forecasts and estimates on tax and social savings and plan inclusion fees are extremely helpful in giving companies a picture of the actual benefits that will accrue once registration is approved. The assistance of qualified tax advisers at this stage can generate added value for strategic tax planning.

It can be said that in December 2021, several companies have already completed the submission of the documentation and information required by the local enforcement authority to be classified as “knowledge-based business”.

On the other hand, there are companies that have already obtained the resolution of the Executing Authority approving the application and registration in the “National Register of Beneficiaries of the Promotional Regime for the Knowledge Economy”.

It should be remembered that companies wishing to benefit from the tax advantages will have to prove that 70% of their total invoicing for the past year comes from promoted activities. Professional services must meet this requirement to the extent of their export.

The law also stipulates that those interested in applying for the promotion must meet two of the three requirements relating to the promoted activity: (i) provide evidence of continuous improvements in the quality of their services, products or processes, or through to a known good quality standard; or (ii) prove disbursements made in (a) training a percentage of their salaried employees, or (b) research and development as a percentage of total billings; or (iii) prove the export of goods or services resulting from promoted activities or their development and intensive application as a percentage of total billing.

The market shows that companies and their stakeholders are genuinely interested in obtaining the certification needed to access tax benefits. Companies doing business in Argentina now rely on this regime to develop a growth strategy if knowledge and technology are the main drivers of their business models.

about the authors

Sergio Caveggia

Author: Sergio Caveggia

Sergio Caveggia is a tax partner currently in charge of the area of ​​transaction taxation in Argentina. He joined EY Argentina in 1994 and has developed over 24 years of expertise in international taxation and mergers and acquisitions. Sergio also focuses on serving clients in the area of ​​Private Client Services (PCS). He has extensive experience in inbound and outbound investment, purchase, sale and transaction tax restructuring services.

Sergio has served in a variety of industries and has also been involved in numerous due diligence procedures performed over the past 20 years. He has lectured at national universities and frequently speaks at tax seminars. He has also written several articles dealing with Argentine tax issues.

He is a certified public accountant from the University of Belgrano in Argentina. He graduated as a Tax Specialist from the University of Belgrano and holds a postgraduate degree in Commerce and Management from the Universidad Catolica Argentina (UCA). He is also a member of the Professional Council of Economic Sciences of Buenos Aires and of the Argentine Fiscal Association.

Jimena Rocio Garcia

Author: Jimena Rocio Garcia

Jimena Garcia is a manager currently working in International Tax and Transaction Services (ITTS) and Private Client Services (PCS) in Argentina. She joined the firm in 2014.

She has extensive experience in social security and labor law due diligence services, buy-side and sell-side, in many companies across different industries. She has also participated in the coordination of numerous cross-border engagements, dealing with foreign labor law and social security issues on each transaction. Jimena participates in numerous seminars related to payroll taxes and labor law issues.

Jimena is a lawyer who graduated in 2010 from UNLAM (Universidad de La Matanza). She is registered with the Bar of the City of Buenos Aires.

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