Uruguay has adopted a territorial concept of taxation. This means that only Uruguayan-sourced income is taxed, irrespective of the nationality, residence of those who are part  of the transactions and despite the place where the business  takes place. Uruguayan taxes are applicable when the activities  are developed, the services are provided or the goods are  situated in Uruguay. However, some perforations have been  incorporated into this guiding principle. Although, in essence,  Uruguayan territorial source income is taxed, especially with  respect to natural persons, some foreign source income is also  taxed.

The tax system is based on the concept of residence: legal  persons are considered residents in Uruguay when they have  been established in accordance with local legislation. Likewise,  those legal persons not constituted according to our legislation  but who have established their domicile in the country are  considered residents. Individuals are considered to be residents  if they remain within Uruguayan territory for a period of more  than 183 days during the calendar year or when their base of  activity or their center of economic or vital interest (family) is in  Uruguay. Unless tax residence is proven in another country, it is  understood that a person has the center of economic interests  in our country when some of the following conditions are met:

 

  • owns real estate in Uruguay worth more than US $  1,600,000, oo, or
  • has an investment in a local company greater than US  $ 4,750,000, or included in activities or projects that have been  declared of national interest.
  • owns real estate, for a value greater than USD 380,000,  provided that it is carried out as of 07/01/2020 and its effective  physical presence is registered in Uruguay during the calendar  year of at least 60 days.
  • has a direct or indirect investment in a company for a  value greater than USD 1,600,000, provided that it is carried out 
  • as of 07/01/2020 and generates at least 15 new direct jobs in a  dependency relationship full time, during the calendar year. Uruguay has signed treaties to avoid double taxation with  Hungary, Germany, Spain, Finland, Argentina, Republic of Korea,  Ecuador, India, Liechtenstein, Malta, Switzerland, United Arab  Emirates, Luxembourg, United Kingdom, Romania, Singapore,  Vietnam, Portugal , Mexico, Chile, Belgium and Paraguay.

INCOME TAX

Corporate Income Tax (IRAE)

The tax levies, only, the Uruguayan source income obtained  by commercial, personal and foreign companies located in the  country, derived from industrial, agricultural, commercial and 
service activities.

Uruguayan sources are considered exclusively income  derived from activities developed within the uruguayan  territory and / or produced by assets located in the country.

The tax rate is 25% on the net income fiscally adjusted.

For the purposes of determining the net income subject to tax, it  will only be allowed to deduct the expenses necessary to obtain and maintain the income and that the counterpart also pays  income tax. The deduction of said expenses will be limited to the  amount that arises from applying to the expense the quotient  between the maximum rate applicable to said income in the  counterparty and the IRAE rate (25%).

Likewise, for the purposes of determining the IRAE, the general  rules on Transfer Pricing apply. This regime applies to IRAE  taxpayers who carry out operations with related persons or entities abroad and entities from countries with low or no  taxation or that are benefit from a special low or no tax regime,  including entities that operate in customs exclaves with special  low tax regimes.

For fiscal years beginning in January 2017, IRAE taxpayers  that are part of a multinational group with a large economic  dimension (GMN) will be obliged to submit special sworn  statements regarding the Country-by-Country Report and  the Master Report, provided that the linking assumptions  established for such purposes.

A multinational group is understood to be when two or more  related entities, resident in different jurisdictions; as well as the  parent company and its permanent establishments. In particular,  GMN of great economic dimension is considered to be those  whose total consolidated income at the end of the group’s  financial year is equal to or greater than 750 million euros. For  the purposes of verifying the income limit, the total consolidated  income at the close of the fiscal year immediately prior to the  report to be submitted will be taken into account.

The information corresponding to the Country by Country  Report (CbCR) as well as the Master Report, must be presented  within 12 months following the close of the report’s fiscal year.

In particular, the presentation of Complementary Information  to the Country by Country Report (CbCR) is required, the  presentation of which must be made before the close of each 
fiscal year of the GMN of great economic dimension to which the  entity belongs.

On the other hand, IRAE taxpayers must make an advance  on this tax, when importing consumer goods. The amount of  the advance will be determined by applying, to the sum of the 
customs value plus the tariff, 4% or 8% depending on the good in  question. The Executive Power is the one who determined what  assets are included within this provision and what rate to apply in  each case.

Regime according to Resolution 51/997

Likewise, there is a fictitious regime for determining Uruguayan  source income for trading operations arranged from Uruguay  in relation to goods located abroad that do not have national  territory as their origin or destination. It is important to mention  that it is also applicable to trading services as long as they are  not provided from Uruguay. Said Resolution establishes that the net income from Uruguayan  source in this case amounts to 3% of the difference between the  sale price and the purchase price of the merchandise. Since the  tax rate is 25%, the final tax is reduced to 0.75% on gross profit. 
(25% tax rate X 3% RFU).

Sotware activitation taxation

As a result of the publication of Law 19,637 on July 26, 2018,  the taxation for software companies undergoes an important  modification, establishing new exemption conditions for fiscal  years beginning on January 1, 2018 The current exemption will depend on the type of activity to be  developed and based on the following parameters:

- when it comes to software production, if the resulting assets  are covered by the rules of protection and registration of  intellectual property rights. In this case, when the referred 
goods are used entirely abroad, the exonerated income will  be the result from applying the relationship of expenses or  direct costs incurred to develop these assets, increased by  30%, compared to total expenses and costs incurred in the  development. For this purpose, will consider in the numerator,  among others, the expenses or costs incurred by the  developer and the services contracted with unrelated parties  or related resident parties, not being included the expenses or  corresponding costs to the concession of use or acquisition of  property rights.  In this case, the exempt income will be exclusively the one that  results from applying the relationship between the expenses  or direct costs incurred to develop these assets, increased by  30%, with respect to the total expenses and costs incurred  in said development. For such purposes, the numerator will  consider, among others, the expenses or costs incurred by  the developer and the services contracted with unrelated  parties, both residents and non-residents, or with resident  related parties. The denominator will include the expenses or  costs corresponding to the concession of use or acquisition of  intellectual property rights, and the services contracted with  non-resident related parties.

- research and development activities in the areas of  biotechnology and bioinformatics and the production of logical  supports, not included in the previous point.
Also, income derived from services is exempted linked to the  aforementioned software.
The income derived from the provision of these services will be  exonerated in their entirety, with the condition that the activity  takes place in national territory. The activity is considered  to be carried out in Uruguay, when the amount of direct  expenses and costs incurred in the country for the provision  of said services is adequate and exceeds 50% of the total  direct expenses and costs incurred in the year for the provision  thereof.

The aforementioned exemption may not be applied by  Partnerships and Civil Partnerships. Residents and non-residents (people and entities) income tax

The tributaión of these subjects varies according to whether  or not they are resident. According to our legislation on  fiscal matters is considered resident to those people who  remain more than 183 days a year in the country. In matter of  companies, they are considered residents, those constituted in  Uruguay according to our laws. 

People considered residents from the fiscal point of view are  contributors of the Personal Income Tax; while non-residents  are taxed by Non-Residents Income Tax.

Residents income tax

Personal income tax has a dual tax system, taxing work and  capital income separately. Income from Uruguayan sources  from activities carried out, assets located and rights used  economically in our territory are covered by the tax essentially.

Earned income is taxed on your gross income with few  deductions and at progressive rates ranging from 10% to 36%  with a non-taxable minimum of approximately USD 8,700 per 
year.

On the other hand, capital income and capital gains from the sale  of assets (mainly real estate and investments in companies) 
are taxed by personal income tax at the generic rate of 12%. 
They constitute capital income, income in money or in kind, that  come directly or indirectly from assets, assets or rights, whose  ownership corresponds to the taxpayer.

The clearest examples are: leases of movable property, interests,  dividends and profits (taxed at 7%), income generated by  goodwill, trademarks, patents, industrial models, copyrights,  federative rights of athletes, image exploitation rights and  royalties.

Likewise, gains obtained by individuals residing in Uruguay,  originating from deposits, placements and investments abroad,  are taxed.

It is important to highlight that, when the taxpayers of the IRAE  (even those exonerated by Law -for example the Free Zone  Companies-) pay the income mentioned in this point, they are  responsible for the withholding of this tax and its corresponding  payment. to the tax authority. 

Non-resident income tax (IRNR)

 The IRNR taxes the Uruguayan source income obtained by  non- residents from developed activities, goods and rights used  economically in our territory, generated by:

a-Business activities
b-Work income
c-Equity increases
d-Capital performance

These revenues are taxed at the rate of 12%, except for dividends  or corporate-accredited Uruguyan profits that are taxed at 7%. 

The IRNR differs from the residents income tax basically in the  form of calculating work income and including income derived  from the joint implementation of capital and work (provided  it does not constitute a permanent establishment) which for  residents is reached by IRAE. 

Non-resident entities that exclusively obtain pure capital  income, do not configure a Permanent Establishment, although  their assets are totally based in Uruguay If a non-resident has an establishment in the country must pay income tax business. Permanent establishment means: 
headquarters, subsidiaries, offices, factories, workshops, any place  of extraction of natural resources, works or construction projects  of which the duration exceeds three months and services (including  consultancy), by a non-resident through employees or any other  staff In the country, for periods of six months within a period of  twelve months. 

As for personal income tax, the taxpayers of the IRAE (even those  exonerated) are withholding agents of the IRNR.
Non-resident entities domiciled in the jurisdictions of Tax HavenBONT- are subject to higher IRNR tax rates.
There is a list issued by the Government that identifies this type of  BONT (Low or No Tax) jurisdictions.

Tax base

In the case of the income identified in literal “a)” and “b)”, the taxable  amount is equivalent to the total income obtained from these items.
For the income of literal “c)” and “d)”, the taxpayer can make some  deductions.

Rates

The rates are as follows: 

Concept Aliquot
Interest corresponding to deposits in banks in national currency and in indexed units, over one year 7%
Interest on obligations and other public debt securities, issued for terms greater than three years 7%
Interest corresponding to deposits, one year or less, constituted in national currency without adjustment claus 7%
Dividends or profits paid or credited by taxpayers of the Income Tax on Economic Activities (IRAE) and the dividends or notional profits 7%
Income from participation certificates issued by financial trusts through public subscription and stock market listing for terms of more than 3 years. 7%
Income obtained by resident entities, domiciled, incorporated or located in BONT countries or jurisdictions, except: a) dividends or profits paid or credited by IRAE taxpayers b) income from real estate located in the country. 25%
Income from real estate located in the country obtained by resident entities, domiciled, incorporated or located in BONT countries or jurisdictions, (except in the case of natural persons) 30.25%
Othes incomes 12%

The computation and payment of this tax will be annual and  begins with the fiscal year ending December 31. The tax is due  within four months of the end of each fiscal year.

This calculation is done by adding the net taxable income (taxed  by IRAE) obtained from 1st July 2007 that is older than or equal  to four fiscal years. Such amount can be reduced by subtracting:

a)The investments made in other Uruguayan companies,
b)The investments in fixed assets,
c)The investment in net working capital (current receivables +  inventory – currents debts), with a limit of 80% of a) +b). 

Investments in assets mentioned in bullets a), b), c) will be  considered since 07/2007 up to the closing date.

ASSET TAX

Property tax (IP) 

The tax levies the net assets of the companies, personal  companies and foreign companies based in the country.

Its basic assumption of application is territoriality, since their  scope of application to the goods or rights placed or used  economically in Uruguayan territory.

For calculating this tax, whose rate amounts is 1,5%, the  company’s assets shall be deducted from the debt incurred with  other liabilities subject to IRAE, financial institutions of plaza and  fiscal and/or welfare agencies. Debts for purchase of goods on  the outside are not allowed for the calculation of the amount  taxed on which the rate is applied. The rules states that when  there are assets abroad, exempt assets or non-computable, the  amount of deductible debts exceeding the value of such assets.

In addition, for those companies with nominal capital in the name  of physical people is allowed to reduce the property tax up in a 1% of the same, for the amount equivalent to the property tax  for trading operations generated in the exercise. 

On the other hand, the regulations stipulate that there must  be propery tax retentions at the rate of 1.5%, for balances with  people from abroad to December 31st of each year. are exempt  of withholding liabilities by import and loans financial.

The taxable base for this tax is an amount set by the PE,  which currently amounts to approximately USD 59,000.

The tax rate is 1.5% when the Company is incorporated,  and 0.75% for each year-end (approx. USD 450 per  year). In the latter case, the ICOSA payment at the end  of each year can be deducted from the IP.

CONSUMPTION TAX

Value Added Tax (IVA) 

The tax levies the internal circulation of goods and  the provision of services within the national territory,  and the definitive introduction of goods to the country  (imports).There are three different categories of goods  in concerning the application of the corresponding  fees: exempt, 10% (minimum rate) and 22% (basic rate). 

Tonformative effects we present a list of the most  significant goods or services in each category:

-Exempt goods or services: agricultural products, real  estate (except the first disposal), tobacco, fuels, fish,  running water, publications and milk.

-10%-minimum rate: Essential foods (bread, rice, etc.),  health services, medicines and hospitality.
-22%-Basic rate: the remaining goods and services.

On the other hand, exports have a regime particular  term “zero rate”, by which their sales are exempt  from VAT and are allowed to recover VAT included in  procurement of goods and services.

That integrate the cost of their sales they are also  not reached by the commercialization of goods or the  provision of services within port sites, free zone or  areas of a similar nature.

Internal Specific tax (IMESI)

IMESI taxes the first sale made by producers and  importers of certain products of luxury character  (cigarettes, alcoholic beverages, refreshments,  cosmetics, vehicles, fuels, etc.) In the local market fees  are set by the government and oscillate from 0% to  100%. The taxable amount resulting from the application  of the corresponding rate on the price set for the 
consumption of goods taxed excluded the tax. 

FREE ZONE

The Uruguayan Free Zones are areas of the national  territory of public or private property clearly delimited and  strategically located, in order to develop in them all kinds of  industrial, commercial or service activities. Economic activity  in these areas is stimulated through specific regulations (Law  15,921 of 01/26/1988) that establishes tax exemptions and 
 benefits. Those who settle in them will not be able to  carry out industrial, commercial or service activities in the  rest of the national territory, with some exceptions.

Tax Benefits

In Law 15,921 it is established that free zone users exempt  from any national tribute, created or to be created, even from  those in which the law requires specific exemption, with 
respect to the activities develop in it. Are not included in this  exemption special contributions to social security and legal  benefits of a pecuniary character established in favor of nonstate public law persons of social Security. You must have  Uruguayan staff who represent at least 75% of all your staff. 

Law 19,566, effective from 8/03/2018, carries out some  changes in the free zones regime.

-Provision of services to the not free national territory

Article 4 allows the provision of services from area to the not  free national territory, to companies that are taxpayers taxed 
by the IRAE. These services tax exempt but the customer will  not be able to deduct it as a deductible expense.

Article 6 maintains previous drafting of literals C) and D)  of article 2 of Law 15,921, with minor modifications and  introduces the possibility of providing services to a user from  a free zone to the developer of another free zone.

- Tax treatment of intangibles

Income derived from the exploitation of intellectual property  rights (IP) and other intangible assets will be exempt as long  as they come from Research and Development activities  carried out within the free zone.

For assets covered by protection regulations and records  of rights of Pl, the income is exonerated exclusively by the  following relationship:-Application of the modifications

Users will keep all of their benefits, tax exemptions and rights  in the terms within the framework of law 15,921 during the  duration of the contracts.

Law 19,566 will not be applied when l imitations on such  benefits, exemptions or rights that were not applicable under  the regime of the Law 15,921.

Free trade zone

From the point of view of customs, the goods entered in the  free zones from the national territory are considered exports,  and the output of goods from free zones abroad are tax free.

The introduction of goods from a free trade zone to the  national territory is considered imported and is subject to the  corresponding rates.

Meanwhile, goods from the Uruguyan free zones entering 

Mercosur member countries are subject to the current  common external tariff for goods from non-Mercosur  countries.

It should also be noted that commercial monopolies industry  in the state are not in force in the free zone

(Direct costs / expenses for development) * 1.3 / Total  expenses or costs incurred in development

-Application of the modifications
Users will keep all of their benefits, tax exemptions and rights  in the terms within the framework of law 15,921 during the  duration of the contracts.

Law 19,566 will not be applied when l imitations on such  benefits, exemptions or rights that were not applicable under  the regime of the Law 15,921.

Free trade zone

From the point of view of customs, the goods entered in the  free zones from the national territory are considered exports,  and the output of goods from free zones abroad are tax free.

The introduction of goods from a free trade zone to the  national territory is considered imported and is subject to the  corresponding rates.

Meanwhile, goods from the Uruguyan free zones entering  Mercosur member countries are subject to the current  common external tariff for goods from non-Mercosur countries.

It should also be noted that commercial monopolies industry  in the state are not in force in the free zone