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Montevideo, Uruguay 11500
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:
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/ )
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:
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 firstname.lastname@example.org.