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Uruguay's New Tax Rules - Understanding What Really Changes For Investors, Expats & Foreign Nationals
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An EscapeArtist 
Special Report

 
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The purpose of the EscapeArtist Special Reports is to provide hard to find information that is factual. There is a great deal of misleading information on the internet, especially in the area of offshore jurisdictions, offshore corporations and offshore investments. On July 1, 2007, Uruguay overhauled its tax legislation, what do those changes forebode for the international seeking to relocate to and/or do business in Uruguay? This article answers those questions with specifics. Uruguay’s new tax rules: understanding what really changes for investors, expats & foreign nationals is written by Juan Federico Fischer, Managing Partner, FISCHER & SCHICKENDANTZ - Uruguay's preeminent law firm.
On July 1, 2007, Uruguay overhauled its tax legislation
The main change was the creation of personal income tax - for income generated in Uruguay.  The purpose of this article is to point out how it affects foreign nationals who live, own property or simply do business in or with the country.
What the new tax rules do not change
The key thing to keep in mind is that nothing has changed regarding what kind of income or assets Uruguay taxes, from a territorial or geographical point of view.  Uruguay will continue taxing only income generated inside Uruguay and assets located inside the country.  Thus, for citizens and foreign nationals alike, any type of income obtained from a foreign source, or assets abroad, will remain untouched by the Uruguayan tax collector.  A U.S. pension, dividends or capital gains on stock in a Japanese company, interest from a CD in a European bank or real estate in Australia: they all remain untaxed. 
What the new tax rules do change
The new legislation basically reintroduces personal income tax in Uruguay, which had been eliminated in 1974.  The way the new income tax rules apply (remember: only on income generated by an activity in Uruguay) is split into work-related income and capital-related income.
Work related income
Work-related income comprises any salary, fees and commissions generated by an activity (a job) inside Uruguay.  This type of income is taxed at progressive rates between 10 and 25%.
Capital related income
Capital-related income is taxed at a flat 12% rate (with some exceptions, in which the rate is lower).  What is capital-related income?
Rental income: Anyone (locals and foreign nationals alike) who owns property in Uruguay and rents it out will have that rental income taxed at 12% (after allowed deductions, such as municipality taxes on real estate, the rate can effectively be lowered by a few percentage points). 
Interest on bank deposits in a Uruguayan bank in foreign currency is taxed at the 12% rate, and deposits in local currency are taxed at 3% or 5%, depending on the period of time they are deposited for.
Yields on Uruguayan government bonds are not taxed.  Corporate bond yields issued by Uruguayan companies are –in general terms- taxed at 3%. 
Capital gains on the sale of an asset located in Uruguay (such as a property in the country): 12% is paid on the spread between the sale price and the original purchase price (which is adjusted for inflation and improvements on the property).  For those assets bought before the new tax laws went into effect (July 1, 2007), one can choose to pay a flat 1.8% tax on the sale price, instead of the 12% on the purchase-sale spread.
Dividends paid out by a Uruguayan company are taxed at 7% (on top of the company’s own 25% corporate income tax, a topic that exceeds the purpose of this article).
The special case of income generated by a foreign company or individual from doing business with Uruguayan companies from abroad
When providing a service to a Uruguayan company from abroad, such as technical services, the source of the income is deemed Uruguayan for tax purposes, and is taxed at a rate of 12%.
The other taxes
The main change in Uruguay tax law, again, is on income tax.  But there are also minor changes in the other two main taxes that the country has: value added tax (Impuesto al Valor Agregado or IVA) and the tax on assets inside Uruguay (Impuesto al Patrimonio or IP).
Value added tax, the sales tax that one pays when paying for a meal at a restaurant or buying an item in a supermarket, is lowered from 23% to 22% (and, for some basic goods and medicines, is lowered from 14% to 10%). 
Assets inside Uruguay are taxed, once a year, at progressive rates that start at 0.7% and reach 2.75% of the “fiscal” (official) value of the asset.  For all practical purposes, after allowing for the minimum non-taxable portion of assets in Uruguay, and considering that the “fiscal” value of a property is usually substantially lower than its market value, this tax is not as harmful as it sounds (and on assets related to some activities, such as farming, the tax does not even apply).  And the good news is that the new law establishes that this tax will be gradually phased out, and virtually eliminated, by 2017.
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