Sponsored Q&A: Deloitte Legal

1. What are the main tax laws and regulations that businesses and individuals need to comply with in Uruguay?

Main Uruguayan tax laws are comprised within the Tax Law Code and the Tax Office Compilation, where are defined and regulated the main applicable taxes for businesses and individuals. In this sense, such compilation comprehends the corporate income tax, resident income tax, non-resident income tax, value added tax (VAT) and the net worth tax.

Additionally, the referred taxes have specific regulations under Law No. 18.083 and Executive Branches Decrees 148/007, 149/007, 150/007 corresponding to income taxes, Decree 220/998 for VAT, and Decree 30/015 for the net worth tax.

Moreover, an excise tax is in force under the Tax Compilation and Decree 96/990 which applies to the first sale of manufacturers and/or importers of certain specific goods. Lastly, wages taxes – which in Uruguay are not strictly taxes but ‘special contributions’ – are regulated under Social Security and Provisional Act No. 16.713.

2. Are there any recent or upcoming changes in the tax legislation of Uruguay that could impact businesses or individuals?

Traditionally, Uruguayan laws only tax businesses and individuals for their Uruguayan source income portion. However, since 2011, there are some exemptions to such territorial source income system mostly related to the resident income tax (‘IRPF’).

In 2022, and to meet certain requirements from the European Union, Uruguay has changed its regulations of the corporate income tax, as of the fiscal period starting in January 2023.

Regarding corporate income tax, foreign passive income derived from dividends, interest, bank deposits and similar, shall be considered as Uruguayan source income (and subject to income tax in Uruguay), if the entity is: (i) part of a multinational group and (ii) is considered as ‘non-qualified’ because it does not meet with certain substance requirements. Notwithstanding, income derived from the transfer of trademarks (or other income produced by such assets) shall be considered as Uruguayan source income if the entity is part of a multinational group regardless of if such entity meets substance requirements.

3. How does the tax system in Uruguay handle international taxation and cross-border transactions?

Uruguay aims to incentive cross border transactions and therefore reducing double taxation issues. There are 24 double tax treaties as well as 14 exchange of information treaties (DTT with Brazil is recently standing). All DTTs in force are based in OECD model – with some aggregates from UN model – and also with MLI provisions since the convention is in force as of June 2020.

4. What are the common tax obligations and requirements for businesses operating in Uruguay?

Corporate income taxpayers are subject to certain formal obligations regarding corporate income tax, net worth tax and VAT.

An entity must make corporate income tax monthly advance payments which are calculated considering the tax liability of the previous year and the monthly income. Monthly net worth tax advance payments also need to be made. A self-assessment annual tax return must be submitted within four months of the end of the accounting period, and final tax is payable by that date. Corporate VAT taxpayers must file monthly VAT returns and make the corresponding payment, if applicable. For small companies, annual VAT return applies.

Moreover, most companies operate as withholding agents when doing business with non-corporate income tax contributors (ie individuals, non-residents, among others).

5. Are there any specific tax incentives or exemptions available to businesses or individuals in Uruguay?

Uruguay offers tax incentives to encourage innovation and investment within the country.

In this sense, the executive branch is entitled to grant tax reliefs to entities regarding corporate income tax, VAT, and net worth tax upon filling the requirements set forth by the Investment Act 16.906.

Moreover, entities operating under the Free Trade Zone Act are full exempted from all national and local taxes if they comply with specific requirements. Following, there are several corporate income tax exemptions both to entities developing software and for those rendering services related to IT.

Related Sponsored Q&A: Deloitte

Lastly, there is a beneficial trading regime under Tax Office Resolution No. 51/97. Under this scope, Uruguayan entities trading goods or services outside the territory are entitled to be considered as Uruguayan income source
only a small portion of their income (3%) and therefore applying the 25% rate only for such portion.

6. How does the tax dispute resolution process work in Uruguay, and what are the options available for taxpayers?

The Uruguayan tax dispute resolution system is a complex one. Controversies against the tax office shall be preceded with a long administrative instance before such same tax office, following an also long and written-oriented procedure before the High Administrative Court (‘TCA’).

If the ruling of the court is favourable to the taxpayers and such has a credit against the authority, another administrative and jurisdictional procedure must be met to have full reimbursement of the amounts paid.

7. What strategies or best practices can businesses employ to optimise their tax planning and minimise tax liabilities in Uruguay?

Binding and non-binding consultations are efficient tools that bring certainty to both new and existing ventures.

Non-binding consultation does not oblige the tax office to follow the adopted criterion. However, if presented by an entity or individual with a personal and direct interest – the criterion adopted by the tax office under a binding consultation shall be mandatory for both parties. Moreover, the resolution of such consultation of the tax office could be subject to the same tax controversy procedure mentioned in Q6.

8. Are there any particular compliance issues or challenges that businesses often face when dealing with tax matters in Uruguay?

Although the Uruguayan jurisdiction has several benefits, some improvements shall be made with respect to efficiency. Despite the efforts that Uruguay had made to modernise the tax administration, there are some improvement opportunities in matters of bureaucracy procedures to be made.

9. Can you provide guidance on the tax implications of investments or business transactions in Uruguay?

Broadly speaking, foreign equity investment is not taxed from the buyer perspective, but sellers depending their tax residence, shall be taxed by the income tax on individuals at an effective rate of 2.4%, income tax on residents at the same effective rate or the corporate income tax at a rate of 25% (with some exceptions under internal law or DTT Uruguayan network).

Considering debt investment from foreign entities, loans given to Uruguayan entities shall be considered as Uruguayan source income for the foreign creditor. Hence, interests shall be taxed with non-resident income tax at a rate of 12% (with some exceptions under internal Law or DTT Uruguayan network).

10. Have you handled any notable tax cases or projects in Uruguay that you can share as examples of your expertise?

In 2022, the Uruguayan Supreme Court ruled in favour of our client (one of the biggest yerba mate brands) regarding certain local taxes. The court understood that the legal effects of the court’s decision shall apply from the time that the right had been violated. In the past, the court had traditionally understood that such effects shall be applicable from the time that the complaint was presented.

Moreover, we recently advised in an M&A deal that involved a complex case regarding VAT application over the transfer of participations, which implied a leading case in the Uruguayan market. That case among others, worked to have the recognition of Deloitte by ITR as the ‘Indirect Tax Firm of the Year 2022’ and the nomination of Juan Bonet as ‘Latin America Indirect Tax Practice Leader of the Year’.