The Executive Branch filed an initiative to support entrepreneurial activity and entrepreneurial capital development, as well as the creation of a crowdfunding system. Likewise, it foresees the creation of a new corporate type, named Simplified Corporations ("S.A.S" after its Spanish acronym) which stand out for being subject to a more dynamic legal framework and shorter registration terms.
On September 2, 2016, the Executive Branch submitted to the House of Representatives a bill which intends to regulate two main issues: on one hand, support for entrepreneurial activity and, on the other hand, the setting up of a new corporate type: the S.A.S (the "Bill"). Currently, the Bill is under the analysis of the General Legislation, Small and Medium-Sized Enterprises, and Budget and Estate Committees.
Below, we shall make a brief overview regarding the most relevant aspects of the entrepreneurial capital promotion regime. For an overview of the new corporate structure, the S.A.S, please see "Simplified Corporation Bill" in this edition of Marval News.
a. Registry Creation – Tax Benefit
The Bill aims to support entrepreneurial activity regarding different productive activities through all provinces within the country and abroad, and generate entrepreneurial capital within the country. The enforcement authority is the Entrepreneurs and Small and Medium-Sized Enterprises Secretariat of the Production Ministry.
Entrepreneurial Capital Investors (legal entities, funds, trustees and human persons investing resources in Entrepreneurial Capital or, directly in endeavors in case of human persons) and Entrepreneurial Capital Institutions (Argentine legal entities, funds and trustees with a goal to provide their own or third-party resources, aimed at more than one endeavor) duly registered before the Registry of Entrepreneurial Capital Institutions may access tax benefits indicated as follows:
- Venture capital contributions may be deducted from income tax with the following limits: (i) up to 75% of the amount of those contributions, and (ii) up to 10% of the taxable net income of the fiscal year (for taxpayers who initiate their activities, the proportional percentage considering the months of activity should be calculated). This percentage on the taxable net income may be reduced by the Executive Branch.
- Venture capital contributions that exceed the limits mentioned previously may be deducted from the income tax in the following 5 immediate fiscal years starting from the fiscal year in which the capital contributions were made.
To such end, "investment contributions" will be deemed to be those consisting of money or financial assets with liquidity (the degree to which an asset can be sold quickly in the market), both in local currency.
Also, the benefit will be conditioned to the following facts:
- The entity that receives the investment will issue a certificate - which will be deemed to be an affidavit- to inform the Registry of Entrepreneurial Capital Institutions the funds invested. They will also inform of the investments through a general information regime to be created by the Argentine Federal Tax Authority ("AFIP").
- The total investment must be maintained for a period of 2 years starting from the first fiscal year in which the investment was made. By contrast, if the venture capital contribution is returned to the investor, either totally or partially, the deduction must be reverted and the corresponding interest must be paid.
The entity that receives the investment will be jointly and severally and unlimitedly liable with the investor if the tax authority claims an income tax omission. The liability will include the tax due, the interest and penalties (for the incorrect deduction of the venture capital contributions as a result of the certificate). Also, the investor could be punished based on the criminal concept of "fraudulent acquisition of tax benefits".
The maximum annual quota to apply this benefit is of 0.02% of the nominal Gross Domestic Product. The benefit applies retroactively to July 1, 2016 for those beneficiaries that register themselves in a timely manner.
In order to obtain the registration before the Registry of Entrepreneurial Capital Institutions, the applicants must comply with their tax and social security obligations and also with the remaining norms pertaining to Prevention of Anti-money Laundering and Terrorism Funding matters, and other illegal activities.
b. Fiduciary Fund for the Entrepreneurial Capital Development ("FONDCE" after its Spanish acronym)
The Bill establishes the creation of the FONDCE, which will be constituted as an administrative and financial trust with the scope provided in the Bill and its regulation, and aims to fund duly registered Endeavors and Entrepreneurial Capital Institutions.
FONDCE may grant loans, non-reimbursable or capital contributions to Endeavors and/or Entrepreneurial Capital Institutions to support entrepreneurial projects.
c. Crowdfunding Systems
Through the Crowdfunding System, the Bill encourages a special regime of promotion to support the entrepreneurial capital industry and allows fund engagement from investors. Furthermore, it grants specific support to B Corporations, meaning, those whose corporate purpose additionally provides social or environmental impact for the benefit of the general interest.
Entrepreneurs that comply with the abovementioned requirements may, through the filing of Crowdfunding Projects by means of a Crowdfunding Platform duly authorized by the Argentine Securities Commission, obtain funds from investors with the aim of developing certain goods or services. Funds thus received shall be directed to the Crowdfunding Project filed by the Endeavor in the Crowdfunding Platform.
The following are excluded from the Crowdfunding System:
- Charity purposes fundraising;
- Donations;
- Direct Sale of goods and/or services through the Crowdfunding Platform;
- Non-convertible into corporate or Simplified Corporate share loans
Through the inclusion of this title, the Bill acknowledges and promotes a new way of doing business that, without sacrificing any benefits, brings an added value through social or environmental contributions for the benefit of general interest.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
