Decree No. 1034/2020: Regulation of the “Knowledge Economy Promotion Regime”.
Tax Department Report | Decree No. 1034/2020: Regulation of the “Knowledge Economy Promotion Regime”
Dear Sir or Madam,
Through National Executive Branch Decree No. 1034/2020, published in the Official Gazette on December 21, 2020: (i) Regulations of Law No. 27,506 and its amendments -also known as “Knowledge Economy Promotion Regime” (hereinafter, the “Regime” or the “Law”)- were approved; and (ii) the export duties applicable to the provision of services included in subparagraph c), of paragraph 2, of section 10 of Law No. 22,415 (Customs Code), carried out by entities registered in the “National Register of Beneficiaries of the Knowledge Economy Promotion Regime” (hereinafter, the “Register”), were reduced to 0%.
Regarding the Regime regulations, it was established, among other issues, the following:
• The Enforcement Authority of the Regime, the Ministry of Productive Development (hereinafter, the “EA”), will set forth the conditions to specify the scope of the activities and items included in the Regime, as well as the requirements for registration with the Register, according to the following guidelines:
• An activity should be considered as the main activity of the applicant entity when the turnover for said activity reaches, at least, 70% of the total turnover of the applicant entity, taking into consideration the 12 previous months to the date of application for registration. In cases of applicants who do not have gross income yet, when such activity is incorporated as an essential part of the production process applicable for their products and services.
• The 70% annual turnover requirement will be considered fulfilled, when said turnover is generated by the implementation of any of the promoted activities included in the Regime, or by the sum of 2 or more of those activities. When the realization of promoted activities cannot be accredited in that way, since turnover does not yet exist for the company, other criteria, such as: the strategic nature of the firm, the percentage of personnel affected to the promoted activity, the degree of development of Research and Development (R&D) activities, among others, will be taken into consideration.
• Regarding the additional requirements for the registration:
1. Accreditation of improvements: the EA will determine the admissible mechanisms for the accreditation of continuous improvements in the quality of services, products and/or processes of the applicants.
2. Investments in activities of:
Training: the investments that the applicant makes in terms of time, money, or resources destined to the training provided to the personnel and/or third parties will be taken into account. Such investments must reach the percentage, set by the Law, of the total payroll corresponding to the employees affected by the promoted activity.
Research and Development (R&D): the sum of expenses made for R&D will be computed, in the terms established by the EA, who will also determine which are the expenses that may not be considered for the fulfillment of this requirement.
3. Exports: this requirement will be considered accomplished when the exports are related to goods and/or services developed as a part of any of the promoted activities, and when such exports are invoiced with E Type invoices. Exports also must represent for the applicant, at least, the minimum turnover percentages established in the Regime.
• As of the month following to their registration, the beneficiaries of the Regime will be able to convert in a tax credit bond part of the social security contributions effectively paid to employees directly affected to promoted activities. On the other hand, the tax credit bond is set at a uniform fixed value of 70% of the employer contributions effectively paid (that is the maximum allowed by the Law).
• As of the registration, the Federal Tax Agency (the “AFIP”) must grant the VAT non-retention certificate provided for in the Law, provided that the beneficiary has carried out at least one export operation in the 3 months prior to the date of registration.
• The tax benefits of the Regime shall only be transferred to a legal person other than the one initially promoted, in the case of a corporate reorganization process carried out under the terms of sections 80 and 81 of the Income Tax Law.
• It is established that the amount to be contributed by the beneficiaries of the Regime to the Fund for the Promotion of the Knowledge Economy, according to the Law, will be 1% for micro-enterprises, 2.5% for small and medium-sized companies, and 3.5% for large companies, of the total amount of benefits received.
The Decree entered into force on December 22, 2020.
Should you require any further information on this matter, please do not hesitate to contact us.
Santiago L. Montezanti