Law 27349 (the “Law”), published in the Official Gazette on April 14 2017, also known as the Venture Capital Law, sets forth certain favorable conditions aimed at helping venture capital companies.
Although it is true that the introduction of the Simplified Corporation (SAS) – described in previous NLs – is the most important aspect of this Law, it also introduces fiscal benefits.
In only four articles, Chapter II known as “Tax Treatment” mentions certain benefits which include the following:
- The Law provides for the possibility of deducting from the Income Tax certain percentage of capital contributions made by investors in the venture company.
- Deduction percentage. The Income Tax may be deducted up to 75% of the contribution made by investors in the venture capital. The limit is 10% of the net taxable income from either the fiscal year or the proportionate term calculated as from the commencement of the activities.
- Deduction percentage in less developed zones and with less access to financing. The percentage may be up to 85% of the contributions made.
- The remaining percentage may be deducted within 5 fiscal years immediately after the year the contributions were made.
- Requirements for obtaining the benefit. The investment must be maintained for two years as from the fiscal year when the contribution was made. If the investor requests the full or partial refund of the contribution, he must include in his Tax Income affidavit the deducted amount and the applicable compensatory interests.
- The benefits will not apply when investment is made after the company ceases to be an Enterprise.
- The annual maximum percentage for applying to this benefit is 0, 02 % of the nominal Gross Domestic Product (GDP). This percentage will be designated provided an investment commitment is made, and in accordance with the mechanism established by the Executive.
- Retroactive application. The statutory benefits may be retroactively applied as of July 1st 2016 provided that the beneficiary is duly registered as such in less than 90 days since the regulation of the Law enters into force.
- Implementation of benefits. The Argentine Tax Authorities (“AFIP”) will be in charge of establishing a general information regime for venture capital entities to file the information related to the investments.
- Contributions must be made in cash or in realizable liquid assets.
- The Law provides that the investment entity is bound to issue a certificate which will be as valid as an affidavit. If necessary, the interests and penalties set forth in Law 11683 (the Tax Procedural Law) will be applied to the beneficiary of the deduction and to the person jointly and severally liable. In addition, the venture capitalist, if applicable, may be charged with the crime of fiscal benefit fraud under Law 24769.
- Registry of Venture Capital Entities. The Law introduces this Registry which must receive the certificates of the venture capital entity receiving the investment. In addition, this entity will be unlimitedly and jointly and severally liable with the investor for having omitted the tax when the information included in the certificate is false or inaccurate.
It is worth mentioning that the Executive has the power to reduce the percentage of net income of the fiscal year which is the limit to the deduction provided for in the Law.