Corporate - Income determinationLast reviewed - 28 March 2023
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 selling 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).
Bearer title transfer capital gains 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). The same tax treatment applies to capital gains derived from the transfer of nominative titles.
Dividends received from local subsidiaries are exempt. Dividends received from foreign subsidiaries are out of the scope of this tax since they are considered foreign-sourced, thus non-taxable, income.
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%).
Foreign source income
Uruguayan legal entities (CIT payers) and non-residents operating through a PE 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.
However, there are 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.
- Income from IP obtained by an entity of a multinational group, as long as it does not result from applying a coefficient that reflects the portion that R&D activities undertaken in Uruguay represent vis-a-vis those undertaken in the rest of the world.
- Income from real estate yields, dividends, interests, other royalties, and capital gains for the transfer of the assets that generate the aforementioned returns obtained by a non-qualified entity of a multinational group. A qualified entity is the one having an adequate economic substance (human and material resources) during the fiscal year. These rules do not apply to income obtained by banks.
- Income derived from the exploitation or transfer of trademarks.
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.