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Argentina: Enhanced tax incentive regime for software, knowledge-based services, R&D

Argentina: Software, knowledge-based services, R&D

Legislation expanding a tax incentive regime has been approved for domestic entities and professionals conducting certain activities relating to software, robotics, medical research and investigation, and research and development (R&D).

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The new law substantially enhances the current tax incentive regime, and provides for:

  • A 15% income tax rate (compared to the standard income tax rate of 30% for 2019 and that is phased down to 25% for 2020 and later)
  • A reduction of social security contributions

The new tax incentive regime will be effective beginning 1 January 2020 and will apply until 31 December 2029. 

Threshold requirements, eligible activities

To be eligible for the tax incentive regime, there are certain threshold requirements that taxpayers must satisfy, such as:

  • 70% of a taxpayer’s revenue must be from the promoted activities.
  • A taxpayer must complete a formal enrollment process.
  • The taxpayer must comply with at least two of the following three requirements:

1.   Provide evidence of continuous improvements in the quality of services, products and/or processes, or evidence of an acknowledged quality standard applicable to such services, products and/or processes

2.   Invest at least 3% of sales in R&D or invest at least 8% of total salaries in workforce training

3.   Realize at least 13% of the total revenue from the export of goods or services (except professional services companies must derive 70% of their total revenue from the export of services)


Activities eligible under the new law include:

  • Software development, digital services, software as a service (SaaS), interactive marketing, e-commerce, e-learning, IT services, cloud computing, videogames development, etc.
  • Audiovisual productions (including digital content)
  • Biotechnology, biology, biochemistry, molecular biology, genetic engineering, etc.
  • Geological and prospecting services
  • Professional services (only if exported)
  • Nanotechnology
  • Aerospace industry, space technologies
  • Industry, automation, robotics, artificial intelligence (AI), “internet of things” (IoT), etc.
  • Engineering, natural and exaction sciences, agricultural and medical sciences connected to experimental R&D activities

Tax incentives

Tax incentive available for eligible activities (listed above) include:

  • “Fiscal stability”—or in other words, eligible taxpayers will not be subject to an increase in their overall federal tax burden (and this incentive could be extended to provincial and municipal jurisdictions adhering to the regime).
  • A 15% income tax rate (compared to the standard 30% rate in force for 2019 or 25% as from 2020 onwards), provided the taxpayer maintains a threshold number of employees.
  • The possibility of crediting foreign income taxes withheld from Argentine source income derived from the promoted activities (otherwise, a credit would only be available under the terms of an income tax treaty).
  • A reduction in social security contributions for “registered employees.”
  • A tax credit equivalent to 1.6 times the amount of the above-described reduction in social security contributions; this tax credit could be used to offset federal taxes including value added tax (VAT) and income tax. Alternatively, the credit could be transferred to third parties (in such instances, the recognition of such credit would not be subject to income tax at the company’s level).

Taxpayers qualifying under the tax incentive regime will have certain reporting obligations; will be subject to audit by the tax authorities; and will be required to pay a fee that generally would not exceed 4% of the tax savings amount. In addition, the tax incentive legislation requires companies to pay an annual contribution of no more than 1.5% of the tax savings to a fund for the development of entrepreneurship.

KPMG observation

Multinational companies conducting or planning to conduct eligible activities in Argentina (or that are enrolled under the current software law tax incentive regime) need to consider whether there are opportunities under the new legislative regime.

 

For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice or with the KPMG member firm in Argentina:

Christian Athanasoulas | + 1 (617) 988-1015 | cathanasoulas@kpmg.com

Alfonso A-Pallete | +1 (305) 913-2789 | apallete@kpmg.com

Rodolfo Canese | +(5411) 4316-5740 | rcanese@kpmg.com.ar

Violeta Lagos | +(5411) 4316-5740 | vlagos@kpmg.com.ar

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