Tax Treatment of the Entrepreneurship Law

1. Introduction

On April 12, 2017, Law No. 27,349 on Entrepreneurship (the “Law”) was published in the Official Gazette, with the aim to “foster entrepreneurial activity in the country and its international expansion, as well as the generation of entrepreneurial capital in the Argentine Republic”, where the Secretariat of Entrepreneurs and Small and Medium Sized Enterprises of the Ministry of Production is the enforcement authority. For further information, please see Support for Entrepreneurial Activity Bill.

The Law introduced tax benefits mainly based on incentives to investors of this type of projects, and created the legal figure of Simplified Corporations (“SC”). This new type of corporation will allow the incorporation and registration of a new corporation online, the obtaining of Tax ID (“CUIT”) within a 24-hour term and the immediate obtaining of a bank account. For further information, please see Law to Encourage Entrepreneurship.

On July 27, 2017, the Public Registry of Commerce (“PRC”) General Resolution No. 6/2017 (“GR 6/2017”) was published in the Official Gazette, by means of which the applicable regime to the SC created by the Law was regulated. It entered into force on September 1, 2017.

GR 6/2017 states that the PRC will only have registration functions, and therefore the SC will not be subject to scrutiny during their operations, dissolution and liquidation. For the cases not expressly foreseen, PRC General Resolution No. 7/2015 will be applicable. For more information, please see Regulation of Simplified Corporations.

On that same date, Joint General Resolution No 4098/2017 by the Tax Authority was published, by means of which the procedure to obtain a CUIT for SC was regulated. For more information, please see Obtention of Tax ID for Simplified Corporations.

All these regulations and the main Law itself are already in force.

Now, Decree No. 711/2017 (the “Decree”) regulates certain aspects of the Law, in particular, tax matters related to a better development of the fostering of entrepreneurial capital.

2. Main aspects

1. These are the main aspects as follows:

• The resources to be contributed to an “entrepreneurial capital institution” can be in money or not, as long as they are liquid financial assets of easy materialization into local currency.
• “Entrepreneurial capital institutions” will be understood as a public, private or mixed legal entity, fund, public, private or mix trust. The Decree states that when the Law speaks of “funds” it is referring to those funds regulated under Law 24,083.
• An “administrating company” will be that legal entity that, in the name and on behalf of the Entrepreneurial Capital Institution manages its investments. The administrating company can be incorporated as any legal type foreseen in the Corporations Law or as a SC.
   

2. Tax treatment

• “Investment contribution” is understood as that contribution directly or indirectly made to an entrepreneurial capital institution in an entrepreneurial venture.
• When the Company receives investment contributions through its foreign or local company, the deduction will proceed as long as certain requirements are met. Particularly: (i) that the contribution has as final and irrevocable destination to fund the venture in a term no longer than 12 months since the contribution; and (ii) that the controlling company holds, at least, 90% of share capital of the entrepreneurial venture by the time of the contribution.
• When the contribution is made through the foreign controlling company, it must be made in “money or liquid financial assets” held abroad. This will be understood as assets that can be settled against legal currency in a term of up to 24 hours without a loss in its value as consequence.
• Regarding the percentage of deduction referred to in Section 7 of the Law, the Decree states that it will be 75% that will be available for deduction against income tax law. Said percentage will rise up to 85% when capital contributions are made to entrepreneurial ventures located in areas identified as areas with poor access to financing and development, being these those located in the Northern region according to Section 2 of Decree No435/2016.
• It is foreseen that (i) individuals will deduct the corresponding contributions from the net gain subject to tax; (ii) legal entities included in subsection a) of the ITL will do the same, while those in subsection b) of said norm will not deduct the contributions, but the shareholders will perform those deductions in their personal tax returns that correspond to their gains as a whole, in a proportion equivalent to their participation in the corporate results.
• Regarding the annual tax quota mentioned by the Law, it will be fixed based on (i) order of applications in due time and form; and (ii) it will be distributed, in each fiscal year, considering strategic sectors, characteristics of the ventures and/or location of the ventures, in the way and conditions to be set by the enforcement authority.
• To access the mentioned benefit, an online application for that matter has been partially defined (the “TAD”) with certain conditions to be defined, but that means that the benefit can be rejected or partially granted subject to the availability of the total tax quota.
   

3. Conclusion

The Decree represents one step towards the development of the Regime to support entrepreneurial capital, which is why it will be useful to boost entrepreneurial activity in the medium term with efficient and proactive mechanisms that help towards the development of mid-scale commercial activity.

This norm entered into force on the day that followed its publication in the Official Gazette.