Uruguay’s tax system is characterized by its unique features, which make it an attractive destination for both individuals and corporations seeking to manage their financial affairs. This South American nation employs a territorial tax regime, focusing on income generated within its borders. In this overview, we’ll delve into the key aspects of Uruguay’s tax structure, including corporate income tax, personal income tax, wealth tax, anti-avoidance rules, and international agreements.
Uruguay’s Tax System Overview
| Corporate Income Tax: | 25% |
| Personal Income Tax: | 36%, progr. |
| Gift Tax: | None |
| Inheritance Tax: | None |
| Wealth Tax: | 0.1 – 1.5% |
Territorial Tax Regime
Uruguay applies the tax principle of territoriality. Income tax is levied on Uruguayan source income only.
Corporate Income Tax
Corporations incorporated in Uruguay are subject to tax on Uruguay source income at a rate of 25%.
Personal Income Tax
Residents of Uruguay are subject to tax on Uruguay source income only at progressive rates with a maximum of 36%. Foreign sourced income from passive financial investments is subject to tax. Uruguay does not impose gift or inheritance tax, but does impose wealth tax.
Anti-Avoidance Rules
Uruguay has no General Anti-Avoidance Rules. Uruguay has Transfer Pricing rules that follow the OECD guidelines, and require transactions between Uruguay residents and related parties, and between Uruguay residents and residents of Low-Tax Jurisdictions (LTJs), to be conducted at arms-length. Uruguay has no Thin Capitalization rules. Uruguay does not have Controlled Foreign Corporation (CFC) rules.
Fiscal Transparency Rules
Under the Fiscal Transparency law (2017), individual residents of Uruguay that own interests in foreign entities (including trusts) with passive income that are resident in LTJs (less than 12% tax rate), and that have no DTTs with exchange of information provisions or TIEAs in effect with Uruguay, are subject to tax on the undistributed profits of the CFC.
Low Tax Jurisdictions- “Black-List”
Cook Islands, Liberia, US Virgin Islands, Saint Maarten, Puerto Rico, Honduras, among others.
Double Tax Treaties (DTTs)
DTTs include Germany, Liechtenstein, Luxembourg, Malta, Singapore, Spain, Switzerland the UAE, and the United Kingdom.
Tax Information Exchange Agreements
TIEAs include Argentina, Australia, Canada, Chile, Denmark, France, Guernsey, Netherlands, Norway, South Africa, Sweden, and the United Kingdom.
OECD Multilateral Convention
Uruguay is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Convention requires signatories to exchange information “on request,” and authorizes spontaneous and automatic exchange.
Common Reporting Standard (CRS)
Uruguay has adopted CRS for the automatic exchange of account information, is a signatory to the Multilateral Competent Authority Agreement (MCAA), and has a number of activated exchange relationships.
FATCA
Uruguay has not executed a FATCA Intergovernmental Agreement (IGA) with the United States, and there is no “agreement in substance” for FATCA implementation.
In summary, Uruguay’s tax system offers a favorable environment for businesses and individuals, with its territorial approach to income taxation and relatively modest rates. The absence of gift and inheritance taxes, combined with a wealth tax that varies based on wealth levels, further contributes to its appeal. Additionally, Uruguay’s commitment to international tax cooperation is evident through its participation in various agreements, ensuring transparency and exchange of information. While tax considerations should always be part of a broader financial strategy, Uruguay’s tax framework certainly merits consideration for those looking to optimize their financial situation.
