New Investment Promotion Regime for Exports of Knowledge Economy Activities

On October 11, 2022, through Executive Decree No. 679/2022, the Executive Branch created the Investment Promotion Regime for Exports of Knowledge Economy Activities, to promote investments in infrastructure, capital goods, and working capital. This regime is aimed at starting up new projects or expanding existing ones, provided they involve developing activities and contribute to increase those exports inherent to the sector.
 

Who can adhere to the regime?

Those legal entities incorporated in Argentina or abroad and registered or not before the National Registry of Beneficiaries of the Regime for the Promotion of Knowledge Economy are entitled to adhere to the regime. These entities must submit one or more projects for investing in infrastructure, capital goods and working capital -including personnel salaries and professional fees- aimed at starting-up new projects, or expanding existing ones that seek to increase exports, if they involve the development of activities included in article 2 of Law No. 27506, as amended.
 

Which projects are eligible?

To be eligible, projects must involve a direct joint or individual investment of over USD 3,000,000, calculated at the time the project or projects were submitted to be evaluated and subsequently approved.
 

What are the benefits?

The benefit is an exception to the requirement of repatriating through the Foreign Exchange Market, an equivalent of up to 20% of the foreign currency received as foreign direct investment. This amount may be used for paying capital and interests of commercial or financial liabilities abroad, and/or profits and dividends of closed and audited balance sheets, and/or for repatriating foreign currency belonging to non-residents, as well as to the investments described here.
 

What is the deadline to adhere to the regime?

The deadline is June 30, 2023, but it may be extended until December 31, 2023.
 

What additional benefits does the regime grant to those registered in the National Registry of Beneficiaries of the Regime for the Promotion of the Knowledge Economy?

Those registered enjoy free availability of up to USD 30% of the foreign currency received from the incremental net exports, provided that they have been complying with their obligations regularly by the time of the application. The available amount will be used for paying of salaries. This benefit does not  dependent on the previous items, and they are not mutually exclusive.
 

How is the Knowledge Economy Promotion Regime created by Law No. 27506 modified?

The decree modifies the benefit related to the tax credit bond established in articles 8 and 9 of the Law No. 27506 and introduces the possibility of a one-time transfer of these bonds, under certain conditions. Until now, these tax credit bonds were non-transferable. It is worth noting that in the first version of the Regime, these bonds were transferable only once. In 2020, the Law No. 27570 established that the bonds would no longer be transferable.
 

This benefit allows beneficiaries of this regime to obtain a tax credit bond of up to 70% of the social security contributions paid for every employee involved in the promoted activities.

It is worth noting that these bonds:

1. can be used for paying VAT and other national taxes and advances, but not income tax. Only beneficiaries who can prove their exports derive from their promoted activities can use the bonds to pay income tax obligations, and only up to the percentage of exports reported upon registration;
2. must be used within 24 months (a term that can be extended an additional 12 months, as established by the enforcement authority);
3. cannot be used to pay debts the beneficiary had before registering before the regime;
4. do not generate credit balances;
5. cannot be taken into account for income tax; and
6. are limited to the fiscal quota established annually by the National Budget Law.
    

Now, the decree states that beneficiaries of the regime who evidence exports of at least 70% of the annual invoicing of the promoted activity or activities can transfer tax credit bonds only once for an amount equivalent to the percentage of the exports of each period, maintaining the same conditions of its granting, and with the purpose determined by the enforcement authority.

This modification is focused on exporters, who are the ones receiving credit balance refunds in their VAT returns which -together with the benefit of reducing the sum for income tax as stated by this Regime- cannot use the tax credit bond against any tax.