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June 14, 2019
Argentina enacts promotional tax system for the knowledge-based economy
On 10 June 2019, Argentina enacted Law 27,506, which establishes a promotional regime for the knowledge-based economy. The promotional regime will be in force from 1 January 2020 to 31 December 2029. Among the regime’s benefits is a reduced income tax rate of 15% for eligible taxpayers and activities. For more information on the proposal, see EY Global Tax Alert, Argentina’s Executive Power proposes bill to promote knowledge-based economy, dated 22 April, 2019.
The objective of the regime is to promote knowledge-based and digital activities that result in the manufacturing of goods, the provision of services or the improvement of processes.
The following activities are included in the promotional regime: software development and related activities (e.g., cloud computing, software as a service, help desk services exported to foreign markets), audio-visual productions, biotechnology, geologic services, professional services qualifying as exports, nanotechnology, satellite and aerospace industries, artificial intelligence, robotics, internet of things (i.e., extension of internet connectivity to physical devices), medicine and agriculture-related investigations and experimental developments.
To participate in this regime, resident companies have to: (1) derive at least 70% of their revenues from the promoted activities; (2) enroll in a registry; and (3) comply with at least two of the following requirements:
Eligible companies will receive the following benefits:
Companies participating in the promotional regime will be subject to reporting obligations and audits conducted by the tax authorities and will be required to pay a fee that will not exceed 4% of the tax savings obtained from the regime.
In addition, the law requires companies to pay an annual contribution not exceeding 1.5% of the tax savings obtained from the promotional regime. The annual contribution will go towards a fund for the development of entrepreneurship.
Special Software Promotion Law 25,922
The law allows companies currently benefiting from the software promotion regime under Law 25,922, which is due to expire on 31 December 2019, to apply for the knowledge-based economy promotional regime. Such companies will be given a special timeframe to comply with the requirements under the new regime.
Companies doing business in Argentina and multinational groups interested in the Argentine market should evaluate the new promotional regime and assess the potential benefits to their operations and activities.
For additional information with respect to this Alert, please contact the following:
Pistrelli, Henry Martin & Asociados S.R.L., Buenos Aires
Ernst & Young LLP (United States), Latin American Businsess Center, New York
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific