By Cra. Ana Olga Iriarte Chebataroff
The current regulatory framework in Uruguay as of the last tax reform distinguishes resident individuals and legal entities from non-residents, and this distinction has effects on applicable taxes. Recently, with an eye to attracting investments in Uruguay, Decree No. 163/020 was passed together with a bill project submitted by the Executive Branch of Government.
The concept of fiscal residence is extremely important for tax systems, and has a significant effect both internally (regarding tax application) and internationally (applicability of agreements and conventions and tiebreaker rules/clauses).
When is an individual considered a Uruguayan resident?
When any of the following requirements is fulfilled:
To remain in Uruguay for over 183 days during the calendar year.
This includes every day in which physical presence in Uruguay is recorded; occasional absences are counted (absences during less than 30 calendar days, unless the taxpayer provides evidence of fiscal residence in another country.
Relocation to Uruguay of the core or base of activities or economic/life interests.
Main family members or base of activities: when income generated in Uruguay is bigger than in any other country, on a per-country basis, and not comparing all other countries combined to Uruguay.
Life interests: when the spouse and minor children who depend on the concerned individual reside in Uruguay; in case the concerned individual does not have children, the presence of the spouse is enough.
Economic interests: An investment in Uruguay that has any of the following characteristics:
- Properties with a value of over 15,000,000 IU (approx. USD 1,500,000).
- Direct or indirect interests in a company, with a value of over 45,000,000 IU (approx. USD 5,000,000), related to activities or projects that have been declared of national interest.
- Properties with a value of over 3,500,000 IU (approx. USD 370,000), acquired after 01-Jul-2020, together with an effective presence in Uruguay of at least 60 days during the calendar year.
- Direct or indirect investment in a company for over 15,000,000 IU (approx. USD 1,600,000), made after 01-Jul-2020; this investment must create at least 15 new direct, full-time jobs with employee status during the calendar year.
Moreover, as mentioned, there is a bill under study to be passed that would add benefits concerning income tax for return on real estate capital from abroad for those that are fiscal residents in Uruguay. Should this bill be passed, two new clauses would be added that could be exploited during this fiscal year (2020) which are:
First option: 10 years of IRPF [Income Tax for individuals residing in Uruguay] taxation (before, this lasted 5 years). A 10-year “tax holiday”, that is, such income would not be taxed for 10 years.
Second option: IRPF Taxation for return on movable capital from abroad would amount to 7%, instead of 12%.
In short:
- Either IRNR [Income Tax for Non-Residents] taxation for 10 years, which means that no taxes are paid for this income from abroad during this term;
- or IRPF taxation with a reduction in the ratio applicable to income for return on movable capital from abroad (from 12% to 7%).
These benefits would be added to the already broadened concept of fiscal residence, turning Uruguay into an attractive place for foreign investors, taking into account other aspects of the national regulatory framework that are also appealing, like no import for income from abroad, such as return on movable capital or asset increases from abroad, which are not taxable under the IRPF regime.
How can I know if I could potentially be entitled to fiscal residence in Uruguay?
Each case must be studied individually, analyzing the person’s activities, the status of the person’s assets, the origin of their income, the place of residence of their family, where is his/her money expended, etc.
What happens if both fiscal residence in Uruguay and in another country could apply to me?
If there is a treaty or agreement with the other country, the provisions thereof must be studied in order to determine in which of the countries is the person considered to be a fiscal resident (tiebreaker clauses) and, accordingly, where is their income taxed.
URUGUAY – ARGENTINA
In the case that, according to the internal laws of Uruguay and of Argentina, a person could be considered a fiscal resident in both countries, given that a convention signed between these two countries exists for the exchange of tax-related information and a method for avoiding double taxation, tiebreaker clauses are applied:
- The person shall be considered a resident only in the country where they have a permament home.
- If the person has a permanent home in both countries, the person shall be considered a resident in the country where their personal and economic relationships are tighter (the center of life interests).
- When the latter cannot be determined, or if the person has no permanent home in either country, the person shall be considered a resident only in the country where the person is usually living.
- If the person usually lives in both countries or neither of them, the person shall be considered a resident only in the country of nationality.
If the person is both a Uruguayan and Argentine national, or neither one of these options, the competent authorities from Uruguay and Argentina will arrive at a decision by mutual consent.