Replacement cost is permitted for tax purposes, as well as the first in first out (FIFO), last in first out (LIFO), or average cost methods, irrespective of the inventory valuation method used for accounting purposes.
Capital gains are treated as ordinary income for CIT purposes.
As a general rule, capital gains are calculated as the sales price minus the fiscal cost (usually acquisition cost updated by certain inflationary indexes) of goods being sold. In certain cases, not all the fiscal cost may be deductible, depending on the application or not of the compulsory proportional deduction mentioned previously in the Taxes on corporate income section.
Furthermore, for certain capital gains, there are special ways of determining the taxable income (e.g. based on notional income).
Capital gains derived from the transfer of titles/shares issued by Uruguayan entities are subject to a 12% tax rate, applicable to a notional 20% of the transfer price (or 20% of market value of the titles transferred if there is no price). For titles quoted in a Uruguayan stock exchange, the 'real method' can be applied.
Dividends received from local subsidiaries are exempt.
The general rule is that dividends received from foreign subsidiaries are out of the scope of this tax since they are considered foreign-sourced, thus non-taxable, income.
However, for fiscal years ended as of 31 December 2023, dividends will be taxed by CIT to the extent that they are obtained by an entity that is part of a multinational group and ’substance‘ requirements, as defined in the rules, are not met in Uruguay (see Foreign-source income below for more information on this matter).
Uruguayan-sourced interest income, derived by resident companies in the country, is subject to CIT under the general regime (i.e. taxed at 25%).
Uruguayan-sourced royalty income, obtained by resident companies in the country, is subject to CIT under the general regime (i.e. taxed at 25%).
CIT payers in Uruguay are only subject to tax on income from Uruguayan sources under the territorial system of taxation. Hence, foreign-source income is not subject to tax. Income derived from activities performed, assets located, or rights utilised outside Uruguay, regardless of the nationality, domicile, or residence of the parties participating in the transactions and the place where the transaction agreements are subscribed, is not subject to CIT.
The following paragraphs address exceptions to this principle.
When a CIT payer obtains income as a consequence of rendering technical services outside the limits of Uruguayan territory to another CIT payer and such technical services are used by the recipient to obtain its income subject to CIT, the income obtained by the company rendering the services will be subject to CIT, even when foreign sourced. Technical services are those rendered in the fields of management, technical administration, or advice of any kind.
The following will also be considered Uruguayan-source income:
- Advertising services rendered from outside Uruguay to CIT payers.
- Mediation, leasing, use, transfer of use, or transfer of federate rights, image rights, and similar of athletes registered in resident sports entities, regardless of the registration period or permanence in Uruguay.
Additionally, based on amendments to CIT provisions (December 2022), the following items of foreign-source income will be taxed by CIT to the extent that they are obtained by an entity that is part of a multinational group and if ’substance‘ requirements, as defined in the rules, are not met in Uruguay:
- Income derived from intellectual property (IP) rights, relating to patents and registered software, disposed of or used economically abroad.
- Income stemming from real estate, capital yields, dividends, interest, other royalties, other income from movable capital, capital gains from the transfer of ownership of assets passible of generating the aforementioned income, and every other equity increase derived from those assets, when obtained by a non-qualified entity. For trademarks, proceeds from holding them or from their disposal will be deemed Uruguayan sourced in all cases.
The concept of a multinational group is defined by the regulations as a group of two or more related entities, resident in different jurisdictions, including the parent company and its PEs.
On the other hand, the rules establish that the relationship will exist when the entity is a member of a multinational group, which occurs when any of the following conditions is verified:
- The entity is included in the consolidated financial statements of the group for filing purposes in accordance with the accounting principles generally applied in the jurisdiction of the ultimate controlling entity of the group or would have been included if the entity were required to prepare such statements, or should have been included in them if the equity interests in such entity were traded in a public securities market.
- If the inclusion hypotheses set forth in paragraph (i) above are met, but it is excluded from the consolidated financial statements of the group solely for reasons of size or relevance.
A qualified entity is such that has an adequate economic substance during the fiscal year. For not being subject to CIT, the condition of qualified entity has to be met with respect to each of the assets generating the items of income stemming from certain assets located outside Uruguay, and during the entire holding period. For such purposes, it will be considered that there is an adequate economic substance for those items of income obtained by an entity that complies with the following conditions simultaneously:
- It employs human resources commensurate in number, qualification, and remuneration to manage the investment assets, and has adequate facilities for the development of this activity in the national territory.
- It makes the necessary strategic decisions and bears the risks in the national territory.
- It incurs the appropriate expenses and costs in relation to the acquisition, holding, or disposal of the relevant investments.
In relation to the condition of qualified entity in a fiscal year, taxpayers must file an annual affidavit with the Uruguayan Tax Office stating the mentioned points.
For purposes of requirements mentioned in (i) and (ii), even when outsourced, it shall be understood that the entity has adequate economic substance when the activity is developed through qualified human resources provided by those third parties in the national territory, and to the extent that there is adequate supervision and control in Uruguay by the entity.
Requirements referred to in (ii) and (iii) do not apply for entities whose core business is holding participations in other entities or in real estate.
Income adjustment for inflation
An income adjustment for inflation applies for the determination of income. It is calculated by multiplying the variation in the consumer price index (CPI) for the financial year by the difference between:
- total assets at the beginning of the year (excluding fixed assets) and
- total liabilities at the beginning of the year.
Under an inflation scenario, if (i) is higher than (ii), then an inflation loss adjustment is deducted from gross income. If (ii) is higher than (i), then an inflation gain adjustment is added.
Tax regulations disallow Uruguayan taxpayers to calculate tax inflation adjustment in their CIT return if inflation is below 100% (variation of the CPI accumulated in the 36 months prior to the close of the fiscal year end). To the extent that inflation has not got to those levels, this adjustment is not applicable in practice.