Uruguay

Corporate income tax (CIT) regulations on passive income

The Tax Office Resolution Nbr. 488/023 establishes the conditions in which the provisions of Law Nbr. 20,095 and Decree Nbr. 395/022 will apply in relation to certain items of foreign-sourced passive income, including the following:

• Income derived from the sale or economic use of trademarks outside the national territory is considered as Uruguayan sourced when obtained by an entity that is part of a multinational group.
• Income derived from notional interest and from exchange differences will not be considered within the scope of these rules. Exchange rate differences shall not derive from real estate capital yields, dividends, interest, royalties, or from trademarks.
• For the purposes of the determination of the condition of qualified entity, making necessary strategic decisions refers to those related to the acquisition, holding, or disposal of the assets generating passive income regulated by the rules.
• An entity shall be considered to have as its main activity the acquisition and maintenance of equity interests in other entities or real estate when the average at the end of each month of the assets directly associated with such activities represent at least 75% of its total assets during the entire holding period. To be a qualified entity, as far as human resources are concerned, the required extremes will be met when most of its personnel is qualified and based in Uruguay, or when at least it has a qualified Director residing in the national territory.
• The information to be included in the annual affidavits on qualified income and qualified entities is established, as well as the deadlines for filing them. It is determined that the entities must keep the documentation that reliably supports the information provided in the affidavits for the statute of limitations period.

Double tax treaties (DTTs)

The DTT signed in November 2021 between Colombia and Uruguay for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was approved by the Uruguayan Parliament on 12 December 2022. As of December 2023, approval by the Colombian Parliament is still pending.

The DTT signed in June 2019 between Brazil and Uruguay for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital came into force on 21 July 2023. Its provisions generally apply from 1 January 2024.

Low-or-no-tax jurisdictions (LNTJs)

The Executive Power established the requirements for a country to be considered as an LNTJ. In this context, the Uruguayan tax authorities are empowered to issue a consolidated list for tax and transfer pricing purposes of countries, jurisdictions, and regimes that meet the conditions in order to be considered as an LNTJ.

On 29 December 2022, the Uruguayan tax authorities issued Resolution 2470/2022, which became effective from 1 January 2023. According to this Resolution, as of 1 January 2023, the following jurisdictions are considered as an LNTJ:

Value-added tax (VAT) relief of tourist activities

On 5 September, Decree Nbr. 271/023 was issued extending the term of the provisions set forth in Decree 318/021 until 30 April 2024. The regulations established that the following activities will have a reduction of 9% in the VAT rate (standard rate 22%), provided the transactions are executed through electronic means:

• Gastronomic services provided by restaurants, bars, canteens, cafes, tea rooms, and alike, or by hotels, motels, apart hotels, inns, tourist stays, country hotels, tourist farms, country inns, country houses, and camping hostels, provided that the services do not include lodging.
• Catering services for parties and events.
• Parties and events services not included above.
• Vehicles rental without chauffeur.
• Mediation services for the leasing of real estate for tourist purposes.

For VAT payers under the 'small companies regime', the reduction is determined by applying a discount of 7.38% on the total amount of the transaction.

Tax relief for small companies: Regulations

In March 2023, the Executive Branch issued Decrees 65/023, 66/023, 67/023, and 71/023, which introduced modifications to CIT and VAT, aiming to reduce the tax burden to small companies.

Regarding CIT, adjustments impact the amount of the monthly payments to be made during the fiscal year as well as the brackets and percentages defined for the ’IRAE ficto‘ (notional CIT) regime, which will no longer be proportional and will start to be applied as a system of progressive rates.

In addition, it was determined that companies that cease to be included in the small companies’ regime as a result of exceeding the annual income limit (approximately 550,000 United States dollars [USD]) during the fiscal year may return to such simplified regime in the following year, as long as the income of the previous one does not exceed the limit.

Incentives for professionals and technicians of the IT sector

In August 2023, Uruguay passed Law Nbr. 20.191 for the promotion of work and settlement in Uruguay of technicians and professionals of the Information Technology (IT) sector. This law aims to attract professionals from abroad, both nationals and foreigners, to professionalize the local IT sector and improve the quality of employment. Said law grants an incentive for IT employees, whereby these individuals may opt for being taxed as non-residents (i.e. 12% flat rate) and opt out of the social security scheme. These options are available for the for the year in which the employment relationship is verified and the following four years.

Accountability Law for Fiscal Year 2022

On 6 November 2023, Uruguay passed Law of Accountability for Fiscal Year 2022, which introduces certain tax provisions that will take effect on 1 January 2024. Among others, the following relevant provisions were introduced.

1. Mergers and spin-offs
   Legal status is granted to the rule that excludes from computing for tax purposes the goodwill in intragroup restructurings which are not tax-driven and provided the following conditions are met:
   - The ultimate beneficiaries from the entities to be merged or spined-off, are exactly the same, maintaining at least 95% of their equity proportions and not modifying them for the following 2 years.
   - The operations must be carried out at the book value.
   - Compliance with the reporting the merger or spin-off to the appropriate public registries.
   - The core business before the merger or spin-off take place must be kept for the following 2 years.
   In case of non-compliance of the above, taxes must be paid without penalties and interests. The statute of limitations applicable in this case will be 10 years. The successor companies will be jointly responsible for the tax obligations of their predecessors in the event of non-compliance.
2. Transfer of equity shares
   Transfer of equity shares of Uruguayan tax resident legal entities will be considered carried out at their fiscal value, and thus no tax due would be derived from these operations, provided that the following conditions are met:
   - The transferors and transferees are tax residents in Uruguay.
   - The ultimate beneficiaries from the transferors and transferees, are exactly the same, maintaining at least 95% of their equity proportions and not modifying them for the following 4 years.
   - The transferees maintain the shares for the following 4 years.
   - The price of the operation equals the book value of the equity shares transferred.
   - Compliance with the reporting the merger or spin-off to the appropriate public registries.