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