Regulation for the regime to promote the software industry

Decree No 1,594/04, in force as of November 18, 2004, regulated the software industry promotion regime created by Law No 25,922 (see “Promotion of the software industry” in Marval News # 32 of September 30, 2004), consisting of tax benefits for those whose principal activity is the software industry.

As per Decree No 1,594/2004, it is understood that someone has software industry as principal activity and, therefore, can have access to the tax benefits the regime offers, when more than fifty per cent of the activities they carry out are integrated in the software or information technology services area.

The tax benefits will be granted on the whole activity if more than eighty per cent of it can be framed within the promotion regime. After registration the authorities shall issue a grounded decision granting the benefits or not within the following sixty days.

If, apart from the software development activities, other of different nature were carried out, a plan of projected activities ought to be presented before the authorities containing: (i) an income and expense budget schemed for software activities; (ii) a list of projected salaries applied to those activities; and (iii) a description of the projected activities together with the objectives. After its analysis, the application authorities shall decide whether or not to include the petitioner in the regime.

Tax stability (article 7 Law No 25,922) shall last ten years as of September 17, 2004; however, the benefits will be in force for each beneficiary from the moment they are granted, they will not reach import and export refunds, and export repayments. As we had explained in our previous publication, tax stability includes direct taxes, extraordinary taxes and special contributions, and implies that the regime beneficiaries’ tax burden will not be increased as of the moment of the registration.

Article 4 of the Decree defines “software self-development” (“autodesarrollo de software”) as an activity that is carried out by persons for their exclusive use or to be used by their related parties; the law excludes this kind of activities from the benefits, even when the other requirements were fulfilled.

In relation with the tax benefits established in Law No 25,922, consisting of converting social security contributions into a non-transferable tax credit bond, it is understood that:

* software research and development activities are developed when expenses applied to them exceed three per cent of the total amount of the expenses of the activities subject to promotions;

* there are activities related to software quality certification processes developed in Argentina when the authorities consider that the beneficiary develops activities tending to obtain a recognized quality standard; and

* there is exportation of software when the software sales abroad carried out by the beneficiary exceed eight per cent of the total amount of sales resulting from the activities subject to promotion.

Finally, the Science, Technology and Productive Innovation Secretariat (“Secretaría de Ciencia, Tecnología e Innovación Productiva”) has been empowered to become a financial entity, fiduciary administrator of the Fiduciary Fund of Promotion of the Software Industry (“FONSOFT”). The authority will have to publish a list of beneficiaries together with the benefits granted to them on its web site, and it has been determined that the funds shall respect the principle of “cost sharing”, which establishes that the National Treasury promotional contributions may not exceed eighty per cent of the total cost of the project if the contributions are refundable, and sixty percent if the contributions are not refundable.