Having explored the legal framework and opportunities for company formation in Uruguay, it’s now time to address one of the most crucial aspects for expats and investors: Taxes in Uruguay. Many are concerned about the complexity of international taxation and the uncertainty regarding their financial obligations. However, Uruguay offers a clear solution: a transparent and predictable tax system that brings you significant advantages.
The Source Principle of Taxation: Your Advantages
Problem: In many countries, worldwide income is taxed, which can lead to complex situations and potential double taxation.
Solution: Uruguay generally follows the source principle of taxation. This means that income derived from activities in Uruguay, from assets located there, or from rights economically utilized in Uruguay, is subject to taxation. This applies regardless of the nationality, domicile, or residence of the parties involved or the place where agreements were concluded. For companies residing in Uruguay, the source principle applies to their worldwide income only with limitations; certain foreign passive income of multinational groups has been subject to new substance requirements since 2023 to qualify for exemption.
Advantage: This approach significantly simplifies your tax affairs, as your non-Uruguayan income (with few exceptions) is generally not taxed in Uruguay. This provides clarity and predictability.
Tax Residency: Clarity for Your Status
Tax residency is crucial for taxation:
- Legal entities are considered tax residents if they were incorporated under Uruguayan law.
- Individuals are considered tax residents if they reside in Uruguay for more than 183 days in a calendar year (unless tax residency in another country can be proven), or if their primary base of activities (center of economic interests) or their vital interests (habitual residence of their family) is in Uruguay.
Problem: Determining tax residency can be complex and lead to unintended tax obligations.
Solution: Uruguay offers clear definitions and, since 2020, new, flexible regulations for tax residency based on certain investment thresholds.
Advantage: This provides clear pathways to tax residency without immediate high tax burdens on foreign income, enabling precise planning for your relocation.
Taxes in Uruguay: Predictable Costs
The main taxes affecting businesses in Uruguay are Corporate Income Tax (IRAE), Net Wealth Tax (IP), and Value Added Tax (IVA). The IRAE (Impuesto a la Renta de las Actividades Económicas – Corporate Income Tax) is levied on net fiscal income from Uruguayan sources at a rate of 25% and applies to Uruguayan resident companies and Permanent Establishments (PEs) of non-resident companies. The annual IP (Impuesto al Patrimonio – Net Wealth Tax) for legal entities is 1.5% of net fiscal assets in Uruguay, with exemptions for agricultural investments up to a certain amount. The general IVA (Impuesto al Valor Agregado – Value Added Tax) rate is 22%, applied to domestic trade, services, and imports, with exports being zero-rated, allowing for VAT recovery. Additional excise taxes (IMESI) apply only to specific products.
Problem: High or unclear corporate taxes can hinder investments and reduce profitability.
Solution: Uruguay offers a competitive and predictable corporate tax system with clear rates and targeted exemptions.
Advantage: This system provides a predictable tax burden and special incentives for export-oriented businesses, strengthening the international competitiveness of your operations.
Taxes for Individuals: Attractive Incentives for Expats
For individuals, there are primarily two income taxes: IRPF and IRNR. Resident individuals (IRPF) are subject to income tax on their Uruguayan-source income (labor income progressively from 0% to 36%; capital income generally 12%, dividends from IRAE-taxed companies just 7%). For non-residents (IRNR), a general rate of 12% applies to Uruguayan-source income (25% for LNTJs).
Problem: Relocating to a new country can result in high income taxes on all earnings, including those from abroad.
Solution: Uruguay offers attractive tax conditions for individuals, especially for new tax residents, who can benefit from the “Tax Holiday” program.
Advantage: You can be exempt from taxation on foreign-source income for 11 years, or opt for a permanently reduced rate of 7% on such income. This makes Uruguay financially very attractive for expats.
Taxes in Uruguay (DBAs): Protection Against Double Burden
Problem: One of the biggest concerns for international activities is double taxation, where income is taxed in two countries.
Solution: Uruguay has an extensive network of Double Taxation Agreements (DBAs), which generally follow the OECD Model Convention. These agreements serve to clarify which state has the right to tax certain types of income and to avoid double taxation. Many DBAs also include provisions for information exchange that comply with OECD guidelines.
Uruguay has also ratified the Multilateral Instrument (MLI) to implement measures to combat Base Erosion and Profit Shifting (BEPS), allowing for rapid and efficient adaptation of bilateral agreements to international standards.
DBAs for U.S., Canadian, British, Australian, German, Swiss, Luxembourgish, and Belgian Nationals
Advantage: For individuals and companies from the U.S., Canada, the UK, Australia, Germany, Switzerland, Luxembourg, and Belgium, specific DBAs provide additional security and predictability:
- With the U.S., Uruguay has a Tax Information Exchange Agreement (TIEA) in force (since 2013), but not a comprehensive Double Taxation Agreement on income.
- With Canada, a TIEA is in force (since June 2014), but not a comprehensive income DBA.
- With the United Kingdom, a DBA has been in force since November 2016. UK-Uruguay DBA
- With Australia, a TIEA is in force (since July 2014), but not a comprehensive income DBA.
- With Germany, a DBA has been in force since December 2011 after renegotiations. Germany-Uruguay DBA (English)
- With Switzerland, a DBA has been in force since December 2011. Switzerland-Uruguay DBA (English)
- For Luxembourg, a DBA has been effective since January 2017. Luxembourg Tax Treaties (General List)
- With Belgium, a DBA has been in force since August 2017. Belgium-Uruguay DBA
These agreements are crucial for clarifying which state has the right to tax certain types of income (e.g., interest, dividends, pensions, salaries) and for avoiding double taxation. This provides you with additional security and predictability.
Important: According to the available information, there is no comprehensive Double Taxation Agreement with Austria listed. This means that for Austrian citizens, the national tax laws of both countries (Uruguay and Austria) would apply without the specific reliefs provided by a DBA.
Transfer Pricing Regulations: Legal Certainty for Groups
Problem: Unclear rules for intercompany transactions can lead to uncertainty and significant penalties.
Solution: Transfer pricing regulations have been in force in Uruguay since July 2007. They apply to international transactions between related companies as well as with parties in low or zero-tax jurisdictions. The rules are based on OECD guidelines and the arm’s length principle.
Advantage: While companies exceeding certain transaction thresholds are required to submit detailed documentation, they also have the option of entering into Advance Pricing Agreements (APAs) with the tax authority. This creates legal certainty and predictability for international groups, even for complex transactions.
Uruguay’s tax system thus offers both transparency and incentives that can be advantageous for businesses and individuals planning their activities in Uruguay.
Ready for your move to Uruguay?
Contact us and book a free consultation!
