Entrepreneurs in Argentina: tax benefits for investors
The recently enacted Law Number 27,349 on Support for Entrepreneurial Activities (Ley de Apoyo al Capital Emprendedor or LACE) is aimed to provide a legal framework to foster and fund entrepreneurship in Argentina. The LACE has established special tax benefits for investors, a crowd funding system and the Simplified Corporation as a new company type. All in all, the LACE will enhance the venture capital industry in Argentina, providing the myriad of high-skill entrepreneurs the country has with their most scarce resource up to know: funding. Following, we will summarize the tax benefits created to benefit those investing in entrepreneurs in Argentina
The LACE defines an entrepreneurship (or start-up) as any – for-profit or not-for-profit – activity being undertaken in Argentina by a newly incorporated legal entity or by a legal entity with a creation date not exceeding seven years (LACE, Article Number 2, Section 1).
In turn, the law defines entrepreneurs as those individuals starting new productive projects in Argentina or undertaking start-ups under the law regulations (LACE, Article Number 2, Section 2).
Entrepreneurial Capital Institutions are those Argentine legal entities – public, private or mixed – or those locally constituted funds and trusts – public, private or mixed – with the exclusive purpose of providing their own or third-party resources to a group of start-ups (LACE, Article Number 3, Section 1).
Under Article Number 3, Section 2 of the LACE, Entrepreneurial Capital Investors are those:
a. Legal entities – public, private or mixed – or funds and trusts – public, private or mixed – investing their own or third-party resources in Entrepreneurial Capital Institutions;
b. Individuals investing their resources in Entrepreneurial Capital Institutions; and
c. Individuals directly investing their resources in start-ups
2. Tax benefits
Entrepreneurial Capital Investors will be entitled to deduct from income tax those percentages set by future regulatory decrees, up to 75% of their capital contributions and as long as such deductions do not exceed 10% of the taxable net income of the fiscal year (the excess – if any – may be rolled over the following five immediate fiscal years). When it comes to capital investment contributions in entrepreneurship located in areas less developed or with less access to funding – as a regulatory decree will define – deductions may extend up to 85% of the capital contributions (LACE, Article Number 7, first paragraph).
Capital investment contributions must consist of money or financial assets with liquidity in local currency (LACE, Article Number 7, second paragraph).
To keep tax benefits, the full capital investment contributions shall be maintained for a two-years period, as from the first fiscal year in which the investment was made. If the capital investment contribution is totally or partially returned to the investor before the expiration of said period, the deduction must be included on the tax return and the corresponding compensatory interest paid (LACE, Article Number 7, final paragraph).
To enjoy the above-explained tax benefits, beneficiaries must be registered with the Registry of Entrepreneurial Capital Institutions (LACE, Article Number 5, first paragraph). Applicants for registration must keep up with their tax and social security obligations and comply with the relevant legal provisions on anti-money laundering, terrorism funding and other illegal activities (LACE, Article Number 6).
Mario Eduardo Castro Sammartino
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