To reduce the negative economic impact that the COVID-19 pandemic will leave, the Uruguayan government further encourages the attractiveness for foreigners settling in the country, and promotes benefits for foreigners who wish to settle Tax Residence.

Through decree 163/20 of June 11, Uruguay:

• The amount to invest in Real Estate decreased from USD 1.8 million to USD 380 thousand, as long as there is an effective presence in Uruguayan territory of 60 days in the calendar year,
• It offers tax residency for those who invest in a Uruguayan company approximately USD 1.6 million and generate at least 15 jobs, formerly was USD 5 million was required.
• It is being discussed in the Parliament modify the period of Tax holiday for new residents from 5 years (current) to 10 years.

Why is it so attractive to obtain tax residence in Uruguay?

We could talk about the beauties and volume of natural resources, the juridical and legal security that characterizes us and many other advantages, however, in this article we will focus on the tax advantages for foreigners who obtain their tax residence for the first time.

1) No Wealth tax is paid for Patrimony located outside Uruguay, including bank accounts or Real Estate.

2) New tax residents who obtain income from movable capital (such as interest and dividends) abroad are exempt from 5-year income tax. In Uruguay 12% is paid on these returns, any other foreign-source earnings are exempt, for example, real estate income or capital gains / capital gains.

3) Services provided outside Uruguay are exempt from income tax. Uruguay applies a territorial, not global, tax system.

4) The profits obtained by software developments and related services have a preferential regime, and some services may even be exempt from income tax.

5) Companies that are not subject to taxes in Uruguay (Uruguay taxes income from territorial sources) will not be subject to withholdings when distributing profits to their shareholders.

6) There is no inheritance tax in Uruguay.

EXISTING GROUNDS FOR OBTAINING TAX RESIDENCE IN URUGUAY

Currently there are in the Uruguayan regulations different causes for which you can obtain tax residence. They will be briefly mentioned below as they do not form the central part of this Newsletter (to learn more about these causes, go to the following links https://insight-trust.com/en/uruguay-tax-residence-for-staying-in-the-country/  & https://insight-trust.com/en/uruguay-tax-residence-for-investments-tax-holidays-for-6-years/ )

1. To remain in Uruguay for more than 183 days in a calendar year. To determine said period of permanence, are included all the days in which there is an effective physical presence in Uruguay, whatever the time of entry and exit (not counting those days when the person is as a passenger in transit), and the sporadic absences established by Decree 148/007, those that do not exceed the 30 calendar days, or
2. When the main nucleus or base of its activities or of its economic or vital interests reside in national territory. Regarding this cause, it is necessary to make some clarifications;
3. A person will be considered to have his vital interests in national territory, when the spouse and minor children who depend on him or her reside habitually in Uruguay, provided that the spouse is not legally separated and the children are subject to parents care. Establishing that in the event that there are no children, the presence of the spouse will suffice.
4. It will be understood that a person has in the national territory the main nucleus or the base of his activities, when he generates income in the country of greater volume than in any other country, not establishing the existence of the base of his activities when they are obtained exclusively pure capital income, even when all their assets are located in Uruguay.
5. On the other hand, regarding the causal of economic interests, the regulation establishes that a person will be considered to be the basis of her economic interests in Uruguay, when he/ she has in Uruguayan territory, an investment:

• In Real Estate with a value greater than UI 15,000,000 (indexed units fifteen), approximately USD 1,800,000 (US dollars one million eight hundred thousand). Considering for these purposes the updated tax cost of each property.
• Direct or indirect, in a company with a value greater than UI 45,000,000 (indexed units forty-five million), approximately USD 5,400,000 (US dollars five million four hundred thousand), which includes activities or projects that have been declared of national interest, in accordance with the provisions of Law No. 16.906 of January 7, 1998 and its regulations. To determine the amount of the investment made, the valuation rules of the Income Tax of Economic Activities will be considered.

NEW CAUSES FOR OBTAINING TAX RESIDENCE IN URUGUAY

From Decree 163/020 promoted by the Executive Power on June 11, 2020, two new grounds for obtaining fiscal residence in Uruguay were added, which are added to the two already existing regarding the aforementioned economic interests. In the previous two paragraphs, these are:

• In real estate, for a value greater than 3,500,000 indexed units (equivalent approximately to the date of the date to USD 380,000), provided that the investment is made from July 1, 2020 and an effective presence is recorded in Uruguayan territory during the calendar year of at least 60 days. In the event that no new acquisitions are made, the updated tax cost of the property or properties already owned in Uruguayan territory will be considered.
• Direct or indirect in a company with a value greater than 15,000,000 indexed units (which is equivalent approximately to the date of the date to USD 1,600,000), provided that it is made from July 1, 2020 and generated at least 15 new direct dependency jobs, full time, during the calendar year. New jobs will be understood as those that are generated as of July 1, 2020, as long as they are not related to a decrease in jobs in related entities.

With this new Decree, Uruguay is aligning with other countries with policies to stimulate immigration as a strategy to increase investment and employment, for example, the United States and Portugal. The mentioned countries offer foreigners who want to settle in that country and invests USD 500k facilities to do so.

POSSIBLE NEW MODIFICATIONS

It is important to clarify that Uruguay currently establishes an extra benefit for those new residents in the country called “Tax Holiday”, for which the new tax residents of Uruguay will be exempt, for the fiscal year in which the change is verified of residence to Uruguay and during the following five fiscal years, to pay taxes on the movable capital income from deposits, loans and, in general, from all capital or credit placement of any nature, obtained abroad.

In this regard, the possibility that this tax exemption will be modified in the near future is being discussed in the Parliament, extending the exemption period from 5 to 10 years by means of a Law.

ISSUES TO CONSIDER

Although we can say today that, after these new grounds for obtaining tax residence in Uruguay, it is a simpler task to apply for tax residence in Uruguay. It is important to keep in mind that after obtaining tax residency in Uruguay or simultaneously with this obtaining, you must lose the status of resident in the country of origin in order not to set up a double tax residence.

Therefore, ultimately, choosing to be a Uruguayan tax resident implies a double effort for those who have a tax residence in another country (obtaining tax residence in Uruguay and losing it in their country of origin), since otherwise it would be subject to taxation in the state of origin configuring a double tax residence issue that is not beneficial at all.

Insight Trust is a Firm of Uruguayan professionals specialized in advising foreigners on legal and tax issues, for more questions contact one of our professionals Advisors at the following email info@insight-trust.com.