On April 12, 2017 Law No 27,349 on Entrepreneurship was published in the Official Gazette. The Law provides tax benefits to encourage investors interested in this type of project; as well as creating the legal figure of the Simplified Corporation. This new corporate type will allow to incorporate and register a company via the Internet, obtain a Single Tax Identification Code (CUIT) within 24 hours and open a bank account on the spot.
The aim of the Law is to "encourage entrepreneurial activity in the country and its international expansion, as well as the generation of entrepreneurial capital in the Argentine Republic", and the Ministry of Entrepreneurs and Small and Medium-Sized Enterprises of the Ministry of Production is the enforcement authority.
The outstanding points the Law provides are:
A. Tax benefits
The Law provides two main fiscal benefits for investors in projects that are not yet in existence or are in existence. The first benefit provides for the possibility for duly registered legal entities or individuals with the Registry of Entrepreneur Institutions (Registro de Instituciones de Capital Emprendedor) to deduct up to 85% of the amount pertaining to their own income tax —depending on the geographical location of the entrepreneurships— regarding capital contributions made to entrepreneurships or institutions whose only corporate purpose is to contribute their own or third parties' resources to entrepreneurships. In any case, the deductible amount no more than 10% of the net taxable income of a given fiscal year (or the proportion calculated as of the beginning of the activities if it is less than a fiscal year).
This percentage may be reduced by the Executive Branch, either by a Decree or by a Resolution enacted by the Tax Authority, so it should be highlighted that, since the deduction of income tax in the case of donations made to foundations or any other non-profit organization currently includes up to 5% of the net taxable income, if the regulations to be enacted cover this topic, we may expect the limit to range between 5% and 10%.
The second benefit establishes that the amount exceeding 10% of the net taxable income of a given fiscal year may be deducted during the following five fiscal years, which is consistent with the current losses' mechanism available for commercial companies. In other words, the benefit analyzed herein is focused on encouraging the investor to make contributions that generate a benefit for entrepreneurships in exchange for a gradual mitigation of their own income tax.
Like any other regime ruling on tax benefits, their granting is subject to compliance with the original purposes for which they were created in the first place. That is to say, total investment will have to be maintained for a period not shorter than 2 years, calculated as of the first fiscal year in which the contribution was made by the investor. If, within such period, the investor requests a total or partial reimbursement of their contribution, then the investor will have to include the amount already deducted in its tax return with the corresponding interest as if the contribution had not existed.
We believe that these benefits may be very useful in practice since the 10% limit applicable to medium-sized or large investors is an important benefit, particularly taking into account its novelty. Regulations by the Executive Branch are expected in order to analyze potential restrictions or special proceedings prior to the obtainment of these benefits.
B. Incorporation of Simplified Corporation
For the creation of this new legal figure, legislators have taken the legislation of Chile, Mexico and Spain as their sources; additionally, the rules of the General Companies Law Number 19,550 will be applied.
The main features of Simplified Corporation (SAS after its
acronym in Spanish) are as follows:
1. Different means are given for incorporation: public or private deed and/or electronically with an electronic signature.
2. SAS may be incorporated by one or several individuals or legal entities. Shareholders limit their liability by the shares they subscribe to, even though all shareholders are jointly liable to third parties for full payment of their shares' subscription. Likewise, companies already incorporated under Law 19.550 (LGS) may be transformed into a SAS.
3. A single-member SAS may not establish or participate in another single-member SAS.
4. Diverse Different corporate purposes are allowed with no need for the activities to be related.
5. Minimum capital stock is equivalent to two minimum wages.
6. Non-monetary asset contributions can be made at a value that the partners unanimously agreed on in each case, justifying the value. Auxiliary services may be agreed upon in the instrument of incorporation, or in subsequent reforms.
7. For cases where the capital increase is less than 50% of the registered capital, under the statute it is not necessary to publish or register the members' meeting.
8. Irrevocable contributions of capital may continue as such for a period of 24 months from their date of acceptance by the Board of Directors of the SAS.
9. The same political and economic rights may be recognized for different types of shares, regardless of whether there are differences in the purchase or sale price of the shares.
10. Managers may be appointed for an indefinite period of time and management may be composed by one- person, plural or collegiate. At least one of its members must have an address in Argentina.
11. Holding Management Board and Shareholders´ meetings inside or outside the company's headquarters is allowed, as well as holding them at distance.
12. In the case of self-appointed meetings, resolutions of the Management Board will be valid if all members attend and the agenda is approved by the majority provided for in the statute. On the other hand, resolutions of Shareholders´´ meetings will be valid if the partners that represent one hundred percent (100%) of the share capital attend and the agenda is unanimously approved.
13. Resolutions will be valid if they are taken in a meeting or by any communication to the Management Board of a partner vote. Likewise, resolutions resulting from written declarations in which all the members express the meaning of their vote will be valid.
14. The Law allows corporate books to be kept electronically.
15. The articles of organization of the SAS, its amendments, powers and revocations granted by its representatives may be executed in an electronic notarial protocol.
16. The incorporation must be registered within 24 hours of filing with the Public Registry.
While the new corporate structure is mainly created to fulfill the needs of entrepreneurial capital, the law does not limit its use for other projects, as long as the entity is not included within any of the cases mentioned above.
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.