Uruguay

New provisions on corporate income tax (CIT) on passive income  

On 16 November 2022, the Uruguayan Congress approved Law Nbr. 20,095, by which new provisions were introduced to CIT to provide a solution to certain aspects of the aforementioned tax that could be considered potentially harmful and encouraging unfair tax competition.

CIT will apply to the following items of income for fiscal years beginning on or after 1 January 2023:

• Income from intellectual property (IP; such as patents and software) obtained by an entity of a multinational group, as long as it is not qualified income. Qualified income is defined as the amount that results from applying a coefficient that reflects the portion that research and development (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 an entity of a multinational group that is not considered qualified. Being a qualified entity is considered as having an adequate economic substance during the fiscal year. These rules do not apply to income obtained by banks.

In the case of trademarks, income derived from its exploitation of transfer will be deemed of Uruguayan source in all cases.

Income tax paid abroad could be credited against the CIT generated in Uruguay for the same income, granting the respective tax credit.

New double tax treaties (DTTs)

The DTT signed between Japan and Uruguay for the avoidance of double taxation and the prevention of fiscal evasion, with respect to taxes on income, entered into force on 23 July 2021, and its provisions apply as of 1 January 2022. The DTT, which was signed on 13 September 2019, is the first of this type between the two countries.

Organisation for Economic Co-operation and Development (OECD) Multilateral Instrument (MLI)

On 11 September 2019, the Uruguayan Congress approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ('Multilateral Instrument' or MLI). The main objective of this instrument is to introduce, quickly and efficiently, the package of measures included in the minimum standard in bilateral treaties, without the need to renegotiate the treaty signed with each of the adhered states. The MLI contains mandatory provisions (minimum standard) and others that are optional. In the case of the optional provisions, each signatory can opt in or out of, in whole or in part. Globally, the MLI entered into force on 1 July 2018.

On 6 February 2020, Uruguay deposited its instrument of ratification of the MLI with the OECD's Secretary General. For Uruguay, the MLI entered into force on 1 June 2020. Nevertheless, the provisions of the MLI will have effect with respect to a tax convention included as of the year following the one in which the instrument is in force in both contracting parties.

The following countries that have a DTT in force with Uruguay are signatories of the MLI: Belgium, Chile, Finland, Hungary, India, Korea, Liechtenstein, Luxembourg, Malta, Mexico, Portugal, Romania, Singapore, Spain, the United Arab Emirates, and the United Kingdom. DTTs celebrated with Brazil, Ecuador, Paraguay, and Vietnam are not included, given that those countries have not adhered to the MLI. Also excluded are those signed with Italy and Japan, which were signed after the communication that Uruguay made, while Germany and Switzerland have not included the DTT with Uruguay in scope.

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:

Promotion of construction 'Projects of Great Economic Dimension'

The Executive Power regulated the promotion of building activities for the sale or lease of real estate destined to offices, housing, and housing developments qualifying as 'Projects of Great Economic Dimension'.

On 17 May 2022, Decrees 155/022 and 156/022 were issued, granting more tax benefits, reducing the requirements to qualify, and broadening the scope of building activities and eligible investments. Tax benefits granted include an exemption of CIT of up to 40% of the eligible investment, with an annual exemption limit of 90% of CIT and a maximum term of ten years. As to net wealth tax (NWT), there is an exemption for civil construction work and lands, with different terms depending on the location in or outside the capital of the country. Movable assets are also exempt from NWT during their useful life. In addition, there is a value-added tax (VAT) and customs duties exemption, as well as VAT credit for the acquisition of equipment, machines, materials, and services destined for civil construction work and for the movable assets to be used in common areas.

The new Decree extends the term for executing the projects that were filed under Decree 138/020, which cannot exceed 30 September 2026. As to projects filed under the original regulations of 2016, the term for executing the investments was extended to 31 December 2023.

National Budget Law 19,924 - Period 2020-2024

On 31 August 2020, the Executive Power submitted to Congress consideration for the bill of Law corresponding to the National Budget for the period 2020-2024, which was later approved in December 2020. In this context, Law 19,924 covers a variety of areas, such as education, economy, and security. Below, we detail the main tax modifications included in the referred law:

• Tax losses from previous years: Law 19,438 (October 2016) limited the deduction of tax losses from previous years to 50% of the net taxable income. Now this limitation disappears. In this sense, as of the years ended on 31 December 2020 (inclusive), taxpayers with accumulated losses may deduct them without considering any cap.
• Simplified Joint-Stock Corporations (SAS as per its Spanish acronym): The law establishes that when the members of the Board of Directors do not receive remuneration, the contributions to social security will be made by at least one of the directors, based on the maximum salary paid by the company. Also, it is added that the administrators and legal representatives of this type of companies will be considered non-dependent workers for social security purposes. In the event that a non-dependent worker works as such in more than one company, one must contribute for the higher notional salary and not for each of them (as it is the case today).
• Foreigners: Foreigners who have obtained permanent residence as of 1 January 2020 and MERCOSUR migrants who enter to reside permanently until 31 March 2021 will have the same benefit that returned Uruguayans enjoy with regard to free entry of personal belongings. Consequently, the goods are free from all exchange procedures and exempt from all kinds of customs duties, taxes, or related charges. Assets in scope include personal property and other effects such as tools, machines, and instruments related to the exercise of their profession, art or trade; one vehicle of their own, among others.
• Tax credit for rental payments: Payment by electronic means will no longer be mandatory to obtain the corresponding tax credit for taxpayers who lease a property intended for permanent housing.

VAT relief: Decree 140/022

On 4 May 2022, Decree Nbr. 140/022 was issued extending the term of the provisions set forth in Decree 318/021 until 30 April 2023. 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.