Trusts in Uruguay are ruled under Law 17,703 which was published on 4 November 2003. Trusts have been legally defined as the legal transaction by which the trust property constitutes a set of property rights or other real or personal rights that are transmitted by the settlor to the trustee for the administration or exercised in accordance with the terms of the trust and for the benefit of a third party (the beneficiary/ies). The trust must designate the beneficiary and also the fiduciary duties owed by the trustee to the beneficiary in compliance with the terms and conditions under which it was created.
According to the definition, there are at least three essential parties to a trust:
- the settlor, who conveys some or all of his property to the trustee;
- the trustee, who holds that trust property and should develop his duties and fulfill the obligations imposed by law and the trust transaction,
- the beneficiary, who will receive the benefits or trust assets once the goal of the trust is achieved. In construction trusts, the settlor may himself be a beneficiary.
Trusts have become a very useful tool in Uruguay due to their convenience and flexibility to structure transactions and investments. There is clear and precise regulation of all rights and obligations of the parties during the trust’s lifetime regarding the administration of the trust assets, distribution of the benefits and use of the goods at the end of the trust agreement.
It is important to note that goods transferred to the trust constitute a separate and independent estate from the estate of the settlor, the trustee or the beneficiary. This implies that trust assets cannot be affected by personal obligations of the settlor, the trustee or the beneficiary.
The law provides for the possibility of creating Guarantee Trusts typically used for obtaining financing, which have special tax benefits. Also, Financial Trusts can be created, being those whose beneficiaries hold certificates of participation in the trust domain, debt titles secured by the property constituting the trust, or titles of a mixed nature which grant credit rights and participation rights on remainder.
Another widely used type is the Management and Investment Trust, such as the Construction Trust.
In Cost Construction Trusts, whose purpose is the construction of buildings, the settlors are bound to make payments that cover all costs incurred by the trust, so that after construction is completed, one or more of those properties are assigned to them. In this case settlors may themselves become beneficiaries.
Cost Construction Trusts are defined as those which simultaneously meet the following conditions:
- are meant for the construction of buildings aimed at being transferred to the settlors of the trust in compliance with the trust agreement; and
- pursuant to this trust agreement, the settlors undertake to make contributions equivalent to the costs incurred by the Trust to achieve its purpose
The contributions of the settlors shall meet the following requirements:
- the amount thereof shall be settled in the trust agreement as well as the form of application of the corresponding adjustments; and
- in the case of the settlors who shall provide the land to the trust, the value of such contributions will be equivalent to the amount set forth in the deed. In no case shall the value be less than the actual value set by the current National Cadastral Bureau.
Recently, pursuant to Decree No. 27/013, the criteria was established for determining the gross income for transfers of real property made to the settlors in compliance with the trust agreement, which shall be determined as the difference between the contributions promptly agreed with the settlors and the tax value of the transferred assets.
It is therefore an exception to the general rules of the Income Tax, which provide that the gross income of the foreclosed assets is determined as the difference between the sale price of such goods in the market and their tax value.
Consequently, the introduction of this provision in the legislation seeks to compute the income at the time of awarding the contract or property to the settlors as zero or very close to this value, thus being an important investment benefit.